Tuesday, October 7, 2008

Fear in Their Hearts, Blood in the Street

Those investors who did some bargain hunting in the closing hour of trade Monday may not look so wise after today's horrific results. On the other hand, they just may have been a few days, weeks or months early.

The stock market was pretty easy to figure on Tuesday. All one had to do was draw a diagonal line at a 20 degree angle from the open and the closing price was right there. Panic would probably be an understatement of the recent emotional trading trends, and that's a strong signal that the bottom may be in sight. It is at these moments and days that the fearful and weak take flight... and losses.

Over the past four session alone, the Dow has flopped nearly 1400 points, a decline of 12% in less than a week and a 34% decline from the absolute top of October 2007. Ditto for the NASDAQ and S&P, and worse. Remember, the NASDAQ was once above 5000. Today it is below 1800. That's a 67% loss overall, but a 39% decline from the high of 2861.51 in October of last year.

The NASDAQ closed today at its lowest point since August 16, 2004.

The S&P is 37% below its high of last fall and today dropped below the 1000 mark for the first time since September 30, 2003, making today's close a 5-year low.

So, the obvious question becomes, "Where is the bottom?"

Dow 9,447.11 -508.39; NASDAQ 1,754.88 -108.08; S&P 500 996.23 -60.66; NYSE Composite 6,388.38 -366.53

Nobody can tell for sure, but, despite the daily ugliness on the exchanges, there may be signs of stabilization in the banking sector, which is, after all, the root of all problems. It will only be known at a later date, but the problems plaguing banks and financial institutions may not spread very far into the general business section of the economy.

Many businesses have already been hurt and an equal amount have seen their share prices pounded down without cause. For the most part, however, financing is only one part of running a business. There are many established companies which will suffer only minor losses and continue to be profitable now, tomorrow and well into the future.

It is in times such as these that bears become bulls. First, by small, faltering steps, then with a better footing, more confidence, until finally breaking into full stride. The entire length of time may be measured in months and maybe years, but there are surely signs of capitulation while many companies and investors aren't blinking.

Confirming that the bottom is in sight are the market internals which were not as one-sided as yesterday's, though close. Declining issues led advancers by a wide margin once more, 5475-1012, a 5-1 ratio as compared to Monday's nearly 8-1 spread. 1854 stocks registered new lows, to just 12 new highs. Compare those numbers to 2804 and 10, yesterday, a marked improvement.

Volume was also not as dramatic as Monday, though close.

NYSE Volume 1,724,910,000
NASDAQ Volume 2,872,177,000

Commodities found some solace in the decline of equities, though these gains are probably fleeting. One should not look to either gold, silver or oil for lock-in profits. There will be slack demand for some time to come and that will put a lid on all commodities and prices overall. Expect the PPI and CPI to show real losses over the coming 6-9 months. On the day, oil gained $2.25, to $90.06; gold added $15.80, to $882.00, while silver was up 10 cents, finishing at $11.38.

If you're scared to look at your portfolio, you haven't been paying much attention. This slow motion market crash began in August of 2007. Anybody with more than half a brain has been either out of the market or taking defensive positions six to ten months ago. If you're in a fund, 401k or other untouchable investment vehicle, the advice I offered many months ago, in late 2007, to take the 10-20% penalty and move it all to cash went unheeded by you.

I hate to say it, but I told you so, and I told you consistently and persistently for the last 12 months, to run away from stocks. Some of you listened. Others did not and are now paying the price.

Tomorrow may be the ultimate blow-off, or the market could stabilize. Those of us with no positions can only sit back and watch the carnage. To the rest of you, who feel that you must be heavily invested at all times, live and learn. And to those who say you can't time the market, you need to look in the mirror at the idiot facing you. This entire collapse was telegraphed better than a roundhouse right from a punch-drunk fighter.

Only the brain dead and intellectually-impaired didn't see this coming.

I will be buying stocks again soon, but nobody should be in any kind of rush. Stocks will remain somewhat depressed for some time to come. Since we've likely been in a recession that began in the 4th quarter of 2007, we should be nearing the tail end of it.

Six months from now, we should all be laughing about the stupid things some people did when they lost all hope. For every loss there's a gain, though there is probably some time spent wondering in between.

A little advice: Shut up, grow up, and man up. Nobody likes a whiner.

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