Market Action, November 12 2008 - Deleveraging Continues

As I look at stock after stock, I wonder if we are about to, if not crash, then break through the lows hard.

The news from Intel this evening certainly increases the likelihood.

Take a look at Motorola.

And Microsoft. 

Microsoft trades at 10x free cash flow.  It’s free cash flow yield is 10%.  Nobody cares.

Google

GE

Citigroup

  

Bank of America

American Express

 

Morgan Stanley

Goldman Sachs

How can the market go up when these stocks are breaking down?

The price of oil

I was pondering that perhaps the VIX may be on the way down.  Sure didn’t look like it today.  It looks like it could re-test the highs. 

The euro/yen cross has rolled over.

 

And the dollar index is on the verge of hitting a 52-week high.

The 3-month T-bill traded as low as 0.14%.

How can any of this be bullish?

I am fighting against cutting my losses on my trading long and hedging out completely, turning what was a positive year into a negative one.  But I have to admit, I'm rattled.

Of course, if I do so, that will probably be at the bottom of the current trading range right, setting off a violent rally.

And if I don't, the S&P 500 will fall to 600.

I hope that this post is a contrarian one, and that my angst is evidence that we are about to bounce. 

But then again, hope is not an investment strategy.

Executives at a financial services conference saying this was akin to 1929 and the 1930s.  If this is the 1930s again, we should soon get a significant rally.  Or at least, that’s what I keep telling myself.

The S&P 500 is down 15% over the past six trading days.  I saw companies with debt, not even a lot of debt, trade down 10%-15% today.

This is panic. 

This is nuts.

Comments

[psychodave]

Edits:
1) GE graph posted under "CITIGROUP" reference

2) Complete omission/deletion of any (much desired) "Italicized ed" comments.

Other than that, an extraordinary barrage of outstanding posts tonight. Many thanks.

[Toro]

Thanks Dave.

Fixed.

[alan smithee]

stick to it

[bill chan]

May be tomorrow is the day.

[dacian]

I don't know people, but this is not average recession. Everyone knows this by now. In bear markets, stocks are oversold and STAY oversold. I think there is a chance this time to be a '29 again, if not worse. Use me as a contra-indicator if you want, I'm one of the crowd which isn't right most of the time. I personally don't want to live a '29.

[Toro]

You may be correct, Dacian.

Except that stocks have already crashed 40% since August and equities never went straight down in the 1929-1932 bear market. There were several counter-trend rallies along the way, usually retracing about 50% of the decline, as we see here.

http://runningofthebulls.typepad.com/toros_running_of_the_bull/2008/11/stocks-1929-1935.html

This is what I am betting on, that we get a counter-trend rally soon.

There is a lot of leverage today through the hedge funds and banks but there was a lot of leverage back then too. In the 1920s, you could buy stocks on 80%-90% margin, and investors often did, unlike today when investors can only buy 50% on margin. Plus, banks often speculated with deposits, and predictably, bank collapses were common.

T.

[dave]

"I am fighting against cutting my losses on my trading long and hedging out completely, turning what was a positive year into a negative one. But I have to admit, I'm rattled."

"Of course, if I do so, that will probably be at the bottom of the current trading range right, setting off a violent rally."

"And if I don't, the S&P 500 will fall to 600."

"I hope that this post is a contrarian one, and that my angst is evidence that we are about to bounce."

"But then again, hope is not an investment strategy."

Enjoyed your candid comments tremendously. They were nuanced and very mature. Occasionally, El Toro must act like El Cordobés http://www.youtube.com/watch?v=nZNZqATYesw

Mkts are never about being a True Believer. I think it was Carter Worth who said several yrs ago "We're in the business about being wrong."

[dacian]

I can understand that, T. I do respect the rebounds and agree with you that nothing goes down in straight line. I played the rebound in October and I was too early. I turned my portofolio from small positive to -20% for the year because of that. I'm 90% liquid right now. I'm not an expert at all and use very few indicators to play the falls (a bit of EW and sentiment indicators). But man, today those don't help anymore. There is animal fear and people are selling everything. It's very hard to see your portofolio going from +10% to -30% in 2 weeks and it's hard to resist those feelings. There will be an interemediate bottom to this and a final one. But right now it's too risky in my view to play either way (short or long). I read hedge funds are selling like crazy again and I don't believe in the 'cash on the sidelines theory', not during a credit bubble anyway. My feeling is this is similar to '29, and very unpredictable. We might have a 50% rebound from the lows (actually we had one, when SPX touched 1000, right?). There still need to be a little hope or a piece of good news to bring buyers. Shorts covering doesn't suffice anymore; they might do it as they consider the low levels, but with so many bad news out there, the buyers aren't taking it from shorts covering and bring it higher. Look at the volumes since October low, these rebounds were pure technical. So bulls know we'll fall harder later, why buy then?

[psychodave]

Thanks for posting the StockCharts.com charts with a logarithmic scale on the Y-axis.

It emphasizes your point.

@dacian
Agree with all your posts, especially your
"In bear markets, stocks are oversold and STAY oversold."
There will be plenty of time to make judicious purchases. The dips of the past were "Buy now or be priced out forever" situations. It is a different market this time.

Please keep posting comments. I suspect you're one of the "rightful owners" from the old chestnut:
"In Bear Markets, stocks return to their rightful owners."

[dacian]

dave, just to let you know I have no merit in all this thinking. I just made on opinion from what I read around, and I said myself 'it might be like this today'. Man, I don't know if I'm among the rightful owners, but hope I'll take advantage one day as I try to keep myself informed. I'm scared man, not because I might loose 10K, but for may family, for my job and other nasty things. It might go quite ugly this time. The amounts we're using today are unprecedente I believe (trilions or maybe tens of trillions) and the pressure on Paulson&Co. is so high that the risk of doing a mistake is not to ignore. Actually, the government these days is the biggest danger for me. They try fix something and they do a bigger whole somewhere else; they might push us into depression my friend...

[bill chan]

yes, I think today is the day.

Intel shortfall $1b, stock price up.

Dow and Naz rebound aharply from hard sellings early on amid all the bad news.

See how it goes towards closing.

But hope T has sold which will be even better (did he say "Of course, if I do so, that will probably be at the bottom of the current trading range right, setting off a violent rally."

[psychodave]

"But hope T has sold which will be even better"
@bill chan | November 13, 2008 at 02:33 PM
Fully agree. You'd think he'd have some consideration for his band of readers and consider their welfare.

"violent rally" ... yum!

[Toro]

No such luck, Bill.

My Lizard Brain was telling me to sell, so instead ...

I bought!

Got some in around noon today.

T.

[psychodave]

@Toro,
Thanks for keeping us posted.

Please let us know when you sell (serious selling, not just readjustments).

Grudging expression of joy for the improvement in your welfare. I bought a stock today too, but that was just to (ahem) diversify out of Money Market mutual fund. Now that they all enjoy a federal guarantee, I expect them to behave like Texas Savings & Loans.

How often is Lizard Brain a perfect contrarian indicator? I mean, does he (she?) bat 0.300 or 1.000?

[Toro]

My Lizard Brain seems to be a great contrarian indicator 4 out of 5 times, if not right away then eventually.

http://runningofthebulls.typepad.com/toros_running_of_the_bull/2006/09/mean_markets_an.html