Longer Term Equity Allocation
Two foreign banks got bailed out and Wachovia
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PowerRating) essentially went belly up yesterday in the Citigroup
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PowerRating) deal after trading at 24 six days ago. The negative vote on the “proposal” was overt news, and the major indexes had a mini crash starting on the 1:40 PM bar that took the SPX down to the 1106.42 close (-8.8) and INDU -7.0 to 10365. This was the 17th biggest % decline in the DOW 30, despite the CNBC hype on the biggest INDU point loss ever which sells newspapers.
I turned CNBC on this morning about 5:15 AM to check the futures, and the first headline caption I see is “The Second Depression”. I don’t know where they buy their “empty suits”. Despite the nay vote by the Republicans, and also 1/3 of the democrats on the finance committee there will be a deal on better proposal shortly. The Democrats could have passed the bill on their own yesterday, because they control Congress, but didn’t, or couldn’t get it done. Both parties should all get off their podiums and get something done, and they can start with expanding FDIC insurance limits of customer accounts to stop the quiet run that has already started. The name of the game now is to switch to treasury securities money market funds, out of the MMF’s that have Corporate paper in them, and to also understand how to get more than the $100,000 FDIC protection by adjusting your accounts, because there are some ways to do it, but you have to ask your banker.
Today is month end and the $SPX futures are +26 points, and INDU futures +170 points at 7:30AM, but the market is captive to the credit market right now, and that will play out over the day relative to the expectation that a “deal” will get done in Washington sooner than later. Traders should “assume nothing, and expect anything”, and keep a fast trigger finger on your exit button during your trades.
NYSE volume expanded to 2.0 billion shares yesterday, and all but 67mm shares to the downside. Breadth was -2820. Equity allocation was increased yesterday on the scale in plan, as 1106.42 was the first SPX close into the anticipated zone to increase index equity exposure. If it hurts, it is usually a good start. Crude oil declined -10.1% yesterday, and settled at $96.36 on the NYMEX, while the $US Dollar index (DXY) was +0.7. The energy sector responded with double digit declines, as the XLE was -11.9, and OIH -11.7, so it is a day trader focus today, in addition to the major indexes, ETFs, and some of the over-weighted defensive issues into month end.
The SPX is -30% high to low (1576-1106) so far in this bear market, which makes it the 4th post World War 2 biggest bear cycle decline since the 5/29/46-5/11/47 bear market. The biggest SPX bear market declines are: Â -50.5 (3/24/00-10/10/02) -49.93 1/11/73-10/4/74 -37.27 (12/2/68-5/26/70) -35.94 (8/25/97-10/20/87) FYI, there will be another bull market, and there will not be a CNBC depression despite their hype.
The next commentary will be Friday 10/3/08.
Have a good trading day!