Daily Market Reports | Oct 25 2008
By Greg Peel
The Dow closed down 312 points or 3.6% while the S&P lost 3.5% and the Nasdaq 3.2%. The Dow thus fell 5.3% for the week, the S&P 6.8% and the Nasdaq 9.3%.
On the wash-up, Friday’s session was not much different to any other for the week, having opened lower and pushed higher to the close on unsubstantial volume. But what was a relatively calm finish in the context belies the potential for Armageddon that existed before the opening bell.
There are many and various culprits one can point a finger at as one tries to put together the complete puzzle of why global stock markets have crashed by 40-70%. But one that cannot be ignored is the simple fact that the Earth rotates on its axis every 24 hours. As a result, global equity markets have experienced what might best be called “rolling thunder”, and Friday’s sessions were a classic example.
In Thursday’s session the Dow closed up 172 points and then put the western hemisphere to bed for the night. Fighting against further falls in commodity prices, the Australian market opened mildly weaker. But when Japan opened a few hours later the Australian market lost its bottle. A series of weak fourth quarter earnings forecasts from several of Japan’s largest global manufacturing stalwarts sent the Nikkei crashing close to 10%. Then Europe woke up.
Europe was already set to sell on the back of the Asian meltdown when it was announced that the UK GDP had not shrunk in the third quarter by 0.2% as expected, but in fact by 0.5%. Europe thus tanked, sending indices in the UK, Germany and France all down around 9%.
When the US finally awoke once more this was the picture. More than three hours ahead of the opening of the exchanges the Dow futures had fallen 550 points, the S&P 60 points and the Nasdaq 85. There they had stopped, because a trading halt was called. Falls of 6.5% trigger a “limit down” situation in the index futures. Limits are set and trading duly halted in order to act as a circuit breaker when emotion has overcome rational trading. But the first limit is set only for the pre-market. On the open of the exchanges, futures trading reopened with the next 6.5% down being the next limit.
Wall Street was expecting Armageddon. With futures locked at their limits there was no telling just how low the indices might open. Had the Dow fallen 1100 points before 11am a one-hour halt would have been automatically called on the physical market. This is what Wall Street was expecting might transpire.
However the thing about “limit down” circuit breakers is they almost always work. Everyone sits down, takes some long, deep breaths, and thinks about it. You might say the regulators send everyone to the “naughty chair”. So when the bell rang, the Dow fell 502 points. That was as far as it was to fall.
It was a choppy old ride back, but by 3pm it was almost back to square. We all know what happens at three o’clock.
In came the sellers, but the buyers were waiting. It was a vigorous bout that could have gone either way, but the buyers wilted in the final round. If it wasn’t just redemptions, it was “Friday sellers” – those traders who simply do not want to take positions home for the weekend.
In the end, it was another 200 point rally from the lows – the third in a row. Once again this sounds like it should make the bulls happy. There is clearly value out there in the market, it’s just a matter of getting through all this forced selling. The only problem is, there’s still just too much money waiting on the sidelines.
The real bulls were actually disappointed that Armageddon did not occur. One last, final, thanks-for-coming capitulation is what the cash-holders want before they can feel truly empowered to jump in and start sucking up the bargains. As it was, traders suggested Friday’s session on Wall Street was eerily calm, given what might have been. That will leave many still reluctant to take that first step just yet. One wonders just how many “capitulations” we actually need.
The intraday low in the Dow on Friday was 8187. That’s still 414 points above the previous intraday low of 7773. The intraday low in the S&P was 852. The previous low is 839. There are many who want to see those lows retested – and they’re the bulls! Does that mean they have to be tested?
Who am I? Nostradamus? The best one can say is that this ain’t over yet. I haven’t made mention of her lately, but the Fat Lady has warmed up. She’s on the stage, and the audience is watching her every move. Only Maestro knows when her aria is approaching, and he will keep us all guessing right till the end.
Not helping the situation last night was the result of the OPEC meeting in Vienna. The oil pit was expecting a 2 million barrel per day production cut and was hoping for 3mbpd. They got 1.5mbpd – not enough.
Oil fell US$3.69 to US$64.15/bbl. Oil’s demise has been exacerbated by funds rushing back from across the globe to the home safety of the US dollar, and as the pound tanked last night on the UK GDP news and the euro crashed in sympathy, the greenback shot up once more. That was never going to be helpful for base metals, and each fell 1-4% with the exception of copper, which has recently become the most volatile metal in the spectrum. Copper fell 7%.
Money is flowing back into the US dollar, particularly from emerging market investments, but it is also flooding back into the yen as the great carry trade is unwound. Put those together and you have curtains for the Little Aussie Battler. It fell five cents last night to US$0.6211, and that was not its low.
Once again gold was under siege and crashed to almost US$680/oz as the greenback surged. But with Armageddon on the cards, the safe-haven buyers took a fall below US$700 as a call to arms. By the time the dust had settled on Wall Street, gold had rallied US$9.20 to close at US$730.80/oz.
The SPI Overnight fell 147 points or 3.8%. A fall of that magnitude on Monday would put us deeper into “new low” territory.
So on a lighter note, thanks to the milling throngs who rushed the FNArena stand all day at the Trading & Investing Expo in Sydney yesterday. It was great to meet a lot of readers and subscribers and see them take up the various deals on offer. Those deals continue today, and there are still a few copies left of our DVD “Dealing with the Bear”. We hope to meet more of you today.
As another “Show Special”, this report will be unlocked immediately.
