Daily Market Reports | Oct 21 2008
By Greg Peel
The Dow closed up 413 points or 4.7% while the S&P added 4.8% and the Nasdaq 3.4%.
The Dow remained in positive territory throughout last night’s session, spending all bar the last hour in a tight range of plus 50 to plus 250. This would not be a tight range in the pre-apocalyptic world of course, but when you’ve seen ranges of 1000 points ease to 500 points, then 200 points seems positively pedestrian. The kick to the close occurred only in the last half hour when traders realised there was going to be no three o’clock selling wave.
The Dow had added 400 points last Thursday but could not get a rise out of the ASX 200 on Friday. That was because it was a Friday, and everyone squared up. The usual naive media reports followed Friday night’s fall of 127 in the Dow, suggesting more bad things for the ASX 200 yesterday, but the media failed to appreciate that Wall Street also saw a Friday sell-off following a 500 point intraday rally. Monday always had reason to be positive for the ASX 200, and dutifully it was.
Another 400 points up in the Dow is a good endorsement for yesterday’s local rally, and it’s hard to see any reason for negativity today either. While volumes have yet to return to solid levels on Wall Street, prompting old-hand traders to remain a little cautious, the signs have nevertheless been good. Credit markets continue their softly-softly easing.
There was a positive response to a speech by Ben Bernanke last night in which he suggested another US government stimulus package would not see any opposition from the Fed. He warned that the economic slowdown in the US could last several quarters, but this was interpreted as implying further rate cuts are possible.
With the market now looking more stable on the global banking crisis front, focus on Wall Street is clearly on the third quarter earnings season. Last night saw a couple of winners, including a good result from American Express after the bell, but there will be losers to come. It is unclear just how the market will accept good and bad earnings reports, and ongoing guidance, given everyone agrees forecasting in the current climate is simply a guess and giggle affair. Loser results may not need to be met with panic given we’ve already had the panic.
This is not to suggest the only way can be up, as there will still be packs of sellers hiding around corners. We could all start to get complacent that we are now in rally mode and then bam – another big flood of fund selling hits one day. These are the sellers who were paralysed into not selling the first time around and are looking for the right opportunity to sell out anyway. So far the movements on Wall Street have played out beautifully to the standard post-crash script, and if this continues what we should see is a sharp rally for a while but one that forms a nasty saw-tooth pattern on the way up.
We may have seen the bottom but that does not necessarily mean we’ve seen the end of the bear market. We could rally back 20-30% and then have another extended down-period. As long as a new low is not found, we could feel safe that the end will then be closer. Or we may rally sharply for a few months and then stop dead before going into a frustrating sideways drift for a year or more. That is the stuff of recession markets. But the stock market always rallies out of a recession long before economic growth improves.
The US dollar was mostly stronger last night but only base metals reacted poorly as a result. The close in London also missed the rally on the death in the Dow. At some point metals prices will overcome their global recession fears and take a look back at just how far they’ve fallen. In the meantime, all metals fell 1-4% with copper down 2.4%.
It was announced in our session yesterday that Chinese economic growth had fallen under 10% for the first time in years. We have been expecting this for a long time.
Oil ignored the US dollar and focused on the potential for serious production cut announcements coming out of the OPEC meeting in Vienna this Friday. The north-east of the US also experienced its first cold snap of the season, and someone pointed out that heating oil inventories are actually quite low. Oil rallied US$2.40 to US$74.25/bbl.
Gold has been slapped down lately despite the US dollar, and clawed back US$13.60 to US$795.70/oz last night. The US dollar rallied against the yen, meaning an easing of carry trade unwinding, and thus the Little Battler managed to mark a close back in the 70s for once, at US$0.7031.
The SPI Overnight rallied 130 points or 3%. If this prediction is accurate then the ASX 200 will push into the 4200s today. Expect resistance at the break-down level of 4300.
