Daily Market Reports | Oct 10 2008
By Greg Peel
The Dow fell 678 or 7.3% while the S&P fell 7.6% and the Nasdaq 5.5%. While not mathematically surprising, it is noticeable just how big the percentage moves have become for points moves we’ve become used to.
Last night was the one-year anniversary of the the day the Dow marked its all-time high of 14,164. To mark the occasion, the Dow crashed through 9000 and just kept going, all the way to 8,579. Two days ago the Dow was at 10,000. Nine days ago it was at 11,000. It is now down 40% from that high.
In the first half hour the Dow was up 190 points as Europe staged a welcome rebound. But that rebound was not to last and sellers moved in on the close. This spooked Wall Street, which then began to sell as well. But having slipped into the green again, the index tracked pretty much sideways until 3pm. Then the three o’clock wave hit.
Redemptions. Hedge and mutual funds have been hit hard with redemptions and must raise cash to pay out departing investors. The only way to do this is to sell stock. But it is always painful to sell stock into a market that’s down, and, let’s face it, there’s been every reason to believe these last few days that a rebound simply must be on the cards. It didn’t come, so with an hour left the sales orders were reluctantly placed.
It’s rather disheartening to watch the open send the Dow up over 100, go to bed, and get up at 5am to see 50 down. It’s positively awe inspiring to watch the index then fall 600 points before your very eyes. But at five minutes to the bell – just five minutes – the Dow had rebounded to be down only 440 (if 440 can ever be “only”). That means 235 points were lost in that five minutes alone.
What does this tell us? Well for one – there are buyers about. It also highlights the fact that a trader must only get an order in before the bell, not trade it. So lately the Dow has closed at about 4.10pm after the buys and sells are netted out. These are orders from sellers waiting to literally the last minute.
But perhaps the best news from last night was that the last hour’s trade featured very, very high volume. It was not a case of no buyers and a vacuum to sell into. The sellers won, but not without a fight. What happens when the redemption selling stops? Unfortunately the answer to that question requires knowing something we can’t know – how much redemption selling is left. And selling begets selling, as is now painfully obvious.
One explanation of today’s drop you will no doubt be offered today is that before the opening bell last night the short-selling ban was lifted. Well – there you go. However, the lifting of the ban also brought buyers back into the market – the long-short players.
There was another three o’clock trigger, nevertheless. Shares in General Motors were trading down as much as 20% from early in the session, and traders were perplexed as to why. There was no news. At least, there was no news until 3pm when Standard & Poors decided, having watch the Dow component lose 80% this year, that it would put the company on negative credit watch.
What ever skerrick of credibility S&P had left, having provided CDOs with a AAA rating pre-2008 before downgrading any bank that held them all through 2008, disappeared for many on the floor of the NYSE last night. Apart from S&P waiting for GM to almost go out of business before then becoming “negative”, thus exacerbating its fall last night to 30%, traders on the floor were wondering aloud just who knew at the opening bell what S&P was intending. General Motors shares are now trading at the same level they were in 1950.
Last night was the night for many retailers to post their monthly sales figures and they were very poor. But the market did not respond in panic. Why should it? That’s exactly what it expected. It was only the three o’clock wave that sent the index to its closing low last night.
The US dollar was higher last night against all the majors. It was not higher against the Aussie however, which managed to reach back over US$0.70 before slipping again to US$0.6819 – over a cent higher in the 24 hours. The Aussie has simply been over sold.
The dollar rally and general recession fears sent oil down US$2.36 to US$86.59/bbl despite an OPEC announcement that the cartel would hold an emergency meeting next month. It is unlikely the meeting will result in anything other than further production cuts. Oil is now back at the level reached early in 2008 at which traders consider the bubble began.
Base metals in London were choppy last night, but all finished in positive territory. Zinc was up 2%, tin 3% and lead 5%. But London was well and truly closed when the three o’clock wave hit in New York
Gold edged up another US$7.00 to US$912.40/oz as it continues its rally in defiance of the greenback.
The SPI Overnight fell 180 points or 4.2%.
Tea-leaf readers had a moment in the sun last night as Wall Street marked two important Fibonacci events. Firstly, the earth completed one full rotation around the sun following the previous high. Secondly, the Dow and S&P 500 both fell beyond their levels that mark 38.2% from the high – Fibonacci’s first magic number, which is based on the “golden ratio”.
Many financial traders will explain just how remarkable it is that Fibonacci numbers (the others are 50% and 61.8%) prove so significant in historical price movements. Pragmatists will explain something called self-fulfilling herd mentality.
Yesterday the ASX 200 briefly breached the 38.2% down level before closing above it. That might have been a good sign. Clearly it will be well-breached today however. Next stop 3300, apparently. Strap in.