Daily Market Reports | Oct 18 2008
By Greg Peel
The Dow closed down 127 points or 1.4%, while the S&P fell only 0.6% and the Nasdaq 0.4%.
Friday’s lacklustre response in the ASX 200 had “Friday” written all over it. Despite 400 points up in the Dow we closed below the line. With a 3% spurt on the open it was a great day to sell, if that’s what you needed to do, and a great day to sell if you didn’t want to take a position home for the weekend. And let’s face it – Fridays on Wall Street can be pretty damned scary, especially when it’s equity option expiration day.
But it wasn’t that scary at all.
On Friday night the Dow moved in only a 563 point range. In a time known, as Kyle would say, the “Long, Long Ago” (meaning before September) a 500 plus point range would seem like some of the greatest stock market volatility known to mankind. But in October 2008 it is amazingly a welcome indication that volatility is slowly beginning to subside. The VIX volatility index is still at 70, indicating fear still rules, but when 1000 point ranges become the norm, a 500 point range is blessed relief.
Being equity options expiry day, anything could have happened. Those familiar with options trading would appreciate that one only need to go for a cup of coffee in the current market to find a deep in-the-money option has suddenly become deep out-of-the-money option. A 500 point range is still pretty wild, but it could have been a lot worse. As it was, Wall Street also played out a rather “Friday” sort of pattern.
After having rallied 700 points to the close on Thursday, the Dow traded down 261 points from the open. It then rallied to be 302 points up by 2pm. That left two hours to go until the end of the week. Whaddya gonna do? Square up, of course, and wait for the three o’clock wave.
The three o’clock wave dutifully arrived, but it was a ripple. The Dow took a dive below the line again but quickly recovered to be square. It was a see-saw last hour, and in the end the sellers took a very mild victory. Down 127 is almost a good day.
The Dow closed up 4.6% for the week – its best week since 2003.
The day began with – shock, horror – some bad economic data. Housing starts were at their worst since the early 90s recession, would you believe. Consumer confidence was shot to pieces. Well blow me down.
Pretty soon these data are going to be accepted with a yawn. The US is in recession, end of story. We have just entered the third quarter results season and individual stocks are going to have some pretty big ups and downs. It’s all pretty meaningless, given Wall Street stock analysts are just throwing darts now. And mark my words, every single CEO is going to announce that the fourth quarter might be tough. Onya Scoop.
I noted on Friday that European markets closed their Thursday session when the Dow was at its low, so it was of little surprise that there were 5% rallies in the Friday session across the pond. The LME also closed when New York was at its worst, so last night base metals were mixed. Copper was up 5%, and that’s all we need to know on a weekend.
Similarly, oil regained US$2.00 to US$71.85/bbl.
The US dollar was mixed against major currencies, not that anyone’s paying much attention right now. Taking a 24-hour snap-shot of the Aussie is also almost pointless, given it finished as good as unchanged at US$0.6903 but has been to hell and back.
Gold took another dive, down US$22.30 to US$782.10/oz. Gold’s scary fall has both good and bad elements to it. We have investors currently trying to sell everything they own to raise cash, and so gold is caught in the rush. But a falling gold price also means a movement out of the safe haven in a belief that the “risk” asset market is improving. This will be a short term phenomenon. The longer term players are still very happy to be in gold.
If the fall in gold was indicative of an easing in short term fear, then there was actually similar but much better news to be found in the fixed interest market. The yield on three-month US T-bills actually rose last night. This signifies a gentle easing of a level of fear so great that investors were prepared to pay “real” interest to the US government just so their wealth could devalue no further. At the same time, the Libor rate continued its gradual, albeit painfully so, decline. Libor is the benchmark for global credit. The lower it goes (and we’re still a very long way from “normal”) the more the global credit market is thawing.
So far, so good.
The SPI Overnight lost 21 points.
Have a good weekend.
