Saturday, June 05, 2010

Markets Tank: Stocks End the Week In Free Fall.

Provided by the Business Insider, June 4, 2010:

Following two straight up days, it looked like the panic might be out of this market. Nope, not even close. Fresh Euro panics combined with signs for weakness in the US to savage markets.

But first, the scoreboard: Dow: -324, down 3.16% S&P 500: -38, down 3.44% NASDAQ: -84, down 3.64%

And now, the top stories:

* The panic really got started pre-market, when a rumor started spreading that SocGen was facing a big derivatives loss. The euro plunged, even though the rumor was never confirmed. Combined with the market's newfound source of panic, Hungary, things were already looking bad early in the day.

* The second thing to club this market was the jobs report, which came in WAY worse than expectations. There's still virtually no private sector job creation. By all accounts, the jobs recovery seems to have plateaued.

* The LMRP is on the Deepwater Horizon gusher, but there's no indication yet that it's working significantly. BP has expressed some optimism that it will work, but nobody will feel confident about that for some time.

* The action in the commodities space was simply horrendous. Copper and palladium, two industrial metals we've been focusing on closely were savaged. Gold however did rally.

* As a politician, Barack Obama is in a total tailspin. The jobs situation made things worse. Earlier this week he appeared to tip a strong report, but it came in week. Then when he spoke this morning, he ignored how bad it was, and sounded foolish.

* A shale explosion in Pennsylvania has cast a pall over the natural gas industry, one group that was expected to benefit in the post Deepwater Horizon era.

* The euro fell below $1.20.

* The oil spill has officially hit the beaches of Pensacola, FL.

The result of a perfect storm???? Are we to see another a stock market crash? The following is a forecast based on historical patterns in price and time.

Equities continue to follow the pattern that preceded the 1929 and 1987 crashes, especially as it relates to time. To recap, the initial leg of the 1929 decline lasted 23 days. A 5 day correction was followed by the next down leg, which lasted 12 days. The initial low was broken on the 6th day of the 3rd down leg and the decline began to accelerate considerably on the 8th day. At the crash low (12th day low), the DJIA had shed 45% of its value from the September 1929 top. The 11th day was the first “Black Monday”.

In 1987, the first leg of the decline consumed 19 days and the following correction lasted 8 days. The initial low was broken on the 6th day of the 3rd down leg and the decline began to accelerate considerably on the 8th day (I didn’t have to change that sentence at all). At the crash low, the Dow was off 38% from its August high. The second “Black Monday” was the 12th day.

Now, in 2010, the first leg of the decline consumed 21 days (as opposed to 23 and 19) and the following correction lasted 6 days (compared with 5 and 8 days). IF the Dow continues to follow the ‘crash path’, then the May low would be broken late next week (the 6th day is Friday the 11th). The decline would accelerate the following next week. 12 days for the crash leg of the decline and 40% (compared with 45% and 37%) would result in the Dow at 6755 on June 22nd. Interestingly, June 21st is a Monday.

Again, this is simply a forecast based on historical patterns in price and time. If the current situation begins to diverge from the path laid out here, then we’ll know that something else is probably in the works. Clearly, the implications for FX (and all markets) are extraordinary.

Don't you agreed if this trend in the stock market continue...we are likely to see the 3rd Black Monday on June 21st. Be prepared!

2 comments:

wINtoTo N aLSo 4D...yEAh! said...

Always pays to get ready for any sudden meltdown...esp when we are seeing the Dow dropping with triple digits losses.

Things....is not looking well.

wINtoTo N aLSo 4D...yEAh! said...

Will still on the outlook for this one too.

Better to be safe then sorry later haha.

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