As I write this, the FTSE is down 4.3%, the Dax 30 and the CAC 40 down 6.1%.
Overnight in Asia, Japan fell 3.6%, Hong Kong 5.5%, China 5.0%, Korea 2.6%, Australia 2.9% and India 7.4%.
The Dow futures are off 480 points, the S&P 500 62 points, and the Nasdaq 84 points.
Stunning.
I would not be surprised to see some movement by the Fed today.
I believe a very hard bounce is coming within the next week or two. I am shifting my focus to covering my shorts and adding long exposure.
"I am shifting my focus to covering my shorts and adding long exposure."
From your previous posts, I question just how "long" you intend your increased "long exposure" to be.
Another way to phrase my question:
Can a very indolent index fund investor just maintain his unleveraged shorts and wait for the market to come back down after this "hard bounce" you anticipate?
Posted by: psychodave | January 21, 2008 at 11:39 AM
My guess is probably yes.
I took off a small portion of my shorts today but added no longs. I do have long exposure though I'm net short stocks in total.
The further and faster we fall, the greater the likelihood of a snapback rally.
In the bear market of 2000-2002, there were several sell-offs of 25%-30%, followed by bounces of 20%. My guess is we will see a similar playbook, though I don't expect the decline to be worse than 2000-2002, when the SP500 was down top to bottom 43%. If we open where the futures are indicating, we will be down 18%-19% from the October top. I don't think that we will fall much further than 25% in this leg of the bear market.
Posted by: Toro | January 21, 2008 at 11:51 AM
Oh, and to answer how long? The answer depends on how far we fall. If we have a precipitous decline, I will get very long. But I may do so in the options market, which limits my downside.
Posted by: Toro | January 21, 2008 at 11:57 AM
Bullish percent is at extremely low levels for general indices and sectors. The selloff tomorrow will exhaust the bear for the time being and a nice bounce will follow. CNBC will say, "See, the markets have discounted the worst!"
The rally will have to resemble a golf ball bouncing off the surface of the moon to get me bullish again. (I wonder how far that 5-iron Armstrong hit traveled before it came to moon. Hope it didn't hit any locals. Nobody wants to be the first human sued by an extra-terrestrial.)
Posted by: Eric | January 21, 2008 at 01:38 PM
Toro, same view here. We needed this exhaustion selloff, but even from someone who say 2000-2002 until you see it again in front of your eyes, you forget how ugly it can be. Germany and France down 7% in 1 session? UK nearly 6%. Those are not India or China.
Just curious - how high (on S&P) do you see the bounce? This the most eagerly anticipated bounce I can remember (that never comes but I think everyone awaiting it is the problem), so how far do you see the market going up. I think this is just the first leg of a bear myself, but we are so classicaly oversold we could run quite a bit.
I agree with Eric though - unless we make new highs (going higher than December highs) its just a bear bounce. Many more to suck you in and then crush your hopes :)
Posted by: TraderMark | January 21, 2008 at 03:20 PM
It is the comments of Mr. S. Das, derivatives expert extraordinare, that concern me. Everybody knew what was wrong with the late 90s bull--overvalued tech. The current credit problems are not so easy to pigeonhole.
Those photos of Bernanke trying to suppress a migraine--hopefully not the defining moment of What Was To Come and the Fed's ability to influence it.
Or perhaps he is wondering why he took a job where he is questioned on a regular basis in public by elected officials.
Following his testimony--
BB: "Alan? Come on over. I need a drink."
AG: "I can't. I'm working late with the guy who made a gazillion dollars off the colossal oversights I made that helped get us in this jam. It was nice of him to hire me.
"Look at it this way, Ben: you'll have a hell of a book to write after it's over."
Posted by: Eric | January 21, 2008 at 08:50 PM
Mark
I think we'll bounce 10%-20%. Then I'd expect to roll over again.
Eric
I agree. Counterparty risk is the next shoe to drop.
Posted by: Toro | January 21, 2008 at 09:03 PM
Am watching TED spread. After a double bottom in July one year apart, straight up. Took the last bear a couple years to cover that much air.
Posted by: Eric | January 21, 2008 at 10:42 PM
Toro, same "guess" here, but more like 10-15%. Interestingly we could go all the way to S&P 1460-1470 and still be in a downtrend. Series of lower highs.
Funny how i am less worried about the recession than I am about the trillions of derivatives. It will consume all this capital in a very vicious way if allowed to spiral out of control. I do think this recession will be deeper than 01, but I think that can be gamed. This credit situation is like the kitchen of 1000 cockroaches. Not sure what drawer to open next.
EEV/FXP I think will be huge winners for us in 08. I sold mine down today, but hope to be back in scale in about 3-4 weeks for the "next leg".
Posted by: TraderMark | January 22, 2008 at 01:21 PM