Hey, I was out of town for a few days — did I miss anything?

As I plow through my key data points, charts, and valuations, a few items are calling out for clarity. Here is what I am thinking about as I try to contextualize the past 10 days trading action:

• This entire crisis traces itself back in large part to then FOMC chair Alan Greenspan not allowing markets and the economy to flush themselves clean after the dot com collapse. It seems that nearly every Fed/Government policy action has been a response to the problems that error led to.

• European bourses down from 2011 peaks: Greece -43.9%, Italy -34.6%, Germany -25.6%.

• XLF (Financial Select Sector SPDR) has gone nowhere for 18 months. From over $17 to now about ~$12, its given up -29.2% from XLF’s 2011 peak. Perhaps all the bailouts did was temporarily interrupt their reverting to a smaller, more appropriate portion of the economy.

• The S&P500 may stabilize around current levels of 1,120-25. If and when that gets violated, the next logical area to test will be near 1,030 — another 10% down from here.

• Is there any political appetite for QE3 ? There is internal Fed opposition to more intervention. With Gold coming up on $2000, and inflation rising in China, its difficult to see much of a political room for the Fed to manuever here.

• There is a fine line separating savvy contrary thought and a reckless fight with markets. Remember, the crowd is what drives the price action, and you want to ride them until they turn into an unthinking mob.

• The Volatility Index (VIX) at 49 is fairly high. That’s above the Flash Crash levels of 41, but below the 2008 peak of ~80.

• There is a parade of talking heads on TV saying soothing, calming things. This can lend itself to a temporary respite from market madness, but the key word is temporary.

• Are US Banks adequately capitalized? The assumption is yes, but FASB 157 (“historical cost accounting”) makes me wonder about BAC and C.

• The % of issues on the NYSE above their 200 day moving average is now ~10%. Under 20% is where I put together a wish list, and 15% is where I dip a toe in the water. However, October 2008 saw a 2.13% level leading to a bounce and rollover; March 2009 at 3.61% saw a lasting rally.

Beware the margin clerks! Forced liquidations amongst traders, retail investors and of course leveraged hedge funds will be part of the action following this sell off.

• Amongst the few remaining Housing bulls, the last glimmers of hope for a Housing rebound have likely been dashed.

• It is the job of the investor to spot opportunity and manage risk. In this environment, which do you think they will be emphasizing?

Today’s market action is in large part a reaction to the wildly oversold condition. The assumption is this will be a bounce for days or weeks, than we will see a resumption of the selling until we make a sustainable low.

More later . . .

Category: Markets, Psychology, Real Estate, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

44 Responses to “Random Thoughts: Recent Trading/Market Activity”

  1. Mike in Nola says:

    Sounds about right.

  2. Mike in Nola says:

    Or, we could follow Suze Orman’s advice:

    “This is a gift from the stock-market heavens,” Orman says.

    I need a gig where I can be wrong much of the time, cost investors their retirement savings, and still make bundles. But I hear that the job market is getting tight again on Wall Street.

  3. Orange14 says:

    Assuming it doesn’t get cancelled we should hear an interesting report on BAC when Brian Moynihan chats with Bruce Berkowitz tomorrow: http://www.fairholmefunds.com/pdf/bacpressrelease.pdf

  4. tmcboston says:

    • This entire crisis traces itself back in large part to then FOMC chair not allowing markets and the economy to flush themselves clean after the dot com collapse.

    I’m sorry. Could you please clarify this point?
    Thank you.

    ~~~

    BR: Oooops! That should read FOMC chair Alan Greenspan

  5. machinehead says:

    ‘I need a gig where I can be wrong much of the time, cost investors their retirement savings, and still make bundles.’ — Mike in NOLA

    Mike — it’s called the Federal Reserve Board. Apply at a branch near you!

  6. [...] Barry digs through the rubble for some clarity.  (TBP) [...]

  7. Greg0658 says:

    BR above “a parade of talking heads on TV saying ….. makes me wonder about BAC” .. Dick Bove just on/off the CNBC air state’g emails coming in asking why BoA is crashing .. ran off with a list of balance sheet grand totals that if come to a total liquidation they would be money ahead … so herd running with heads turned to rear .. hostile takeover .. “market calls, boys” .. or _

  8. Mike in Nola says:

    BTW, heard you were on Tom Keene this morning. Is there an mp3 available?

  9. Concerned Neighbour says:

    Some very interesting overnight events. Governments got desperate. The South Korean government bought stocks. I suspect many others did, but without the transparency. You can respect the South Koreans and Japanese; at least when they intervene/manipulate supposedly free and fair markets, they tell you about it.

    Check out today’s DAX chart. Straight down 7% (or freefall, as I like to call it), and then pumped up to the point where it’s now only 1.7% down.

    I think that “coordinated G20 action” may be code for “governments will buy stocks if things fall too fast”. If true, most wouldn’t tell.

    Speculation is growing that Bernanke will commence his latest round of asset inflation today, and the goldfish on the street will probably eat it up, not noticing how ineffective the second round was.

  10. BennyProfane says:

    I was in a rare mood this morning and turned on CNBC at 6, and, guess what? Joe Kernan was blaming Obama! Who knew?

    Does anybody else think that Sorkin is a major schill just for sitting at that desk in the morning and humoring that idiot across from him?

  11. KidDynamite says:

    “This entire crisis traces itself back in large part to then FOMC chair not allowing markets and the economy to flush themselves clean after the dot com collapse”

    I very much agree – and I think that so many people don’t realize that. Unfortunately, the FOMC chair ALSO didn’t allow markets/economy to flush themselves clean after 9/11, or after 2007/8 either… which just compounded the problem.

  12. dead hobo says:

    1) If the Fed is dumb enough to announce another round of asset purchases to ‘calm the equity markets’ then I have just completed my list of assets-ready-to-inflate (TM) which will be purchased if at least three months at total $100B (more or less) per month is made available to calm the markets. woo woo! That’ll be a quick 20%.

    2) In reality, this appears to be a simple repricing rout and not a financial market collapse. Credit and liquidity appear to be in good shape. The Fed pump and dump is just cycling as one could easily have predicted (I did). I can only guess as to where the bottom will be. My first guess is where it all started when QE2 was first suggested in Sept, 2010. Otherwise, S&P 900ish.

    3) Damn, but my expected 30Y bond 50% retracement probably won’t happen. It didn’t happen when Lehman went bust and this rout is much like that one. At least I got out at S&P1340 and made a few bucks on the initial part of the flight to safety. Still like to brag about that because, if I don’t, nobody else will.

    4) Otherwise, if there are no Fed entanglements in the near term, I suspect a bottoming process at some level that doesn’t start to climb back until November. If some high octane Fed money arrives, then S&P 1400 might be near, at least until it’s spent. Then, time for more flight to safety bonds.

  13. Hugh says:

    I cannot see any support levels for this market – unless (until) we get back to the 2010 lows.

    I wonder too about the selling that occurred after the debt ceiling deal: in part that was driven by the poor economic data; but I think there may have been some insiders with info on the downgrade as well.

    Tut tut.

  14. theexpertisin says:

    Always appreciated to read a post that is both sensible and definitive.

    Although my gut feeling is that we have one of the most incompetent administrations in our history failing at almost turn except in the treatment of their union and public employee contributors, I hope not for continued failure, but a merging of good practices to propel us out of the malaise in which we find ourselves.

    That means all political persuasions pulling together.

  15. Petey Wheatstraw says:

    The last couple of years may have been the bounce. It’s very interesting that without QE, the markets tank (maybe attributable to the S&P downgrade and the disgraceful display of infantile behavior by our elected officials, but the end of QE seems to be a more likely explanation).

    Opportunity or risk? As hardly any of the toxic assets/financial products have been backed out of the system or accounted for (by any realistic valuation), debt is accelerating, and the lunatics are still fully in control of the asylum, I’d say risk management is in order until these things play out/unwind. That could take a long time, if done in an orderly and legal fashion, or a very short time if all the Black Swans come home to roost at once. I figure the odds tilt toward the latter, as we’re in full serial crisis management mode, already.

    I hardly recognize this country anymore, and I certainly have no reason to trust “the markets,” the currency, any branch or agency of the government, the central bankers (the real government), or the “job creator” class.

    We are in uncharted territory, and the risks abound. Will there be opportunities? Of course there will. Finding and capitalizing on them will be more a matter of luck than of savvy.

  16. Orange14 says:

    BR, can you or someone who understands gold explain why it continues to go up? The total amount of gold is fixed (mining really doesn’t add that much to the world’s gold stocks) and we don’t mint gold coins any longer. So if I invest in a gold brick and everything else goes south, how do I get the brick out of storage and spend it? I’ve long been puzzled by the fascination with gold but can’t figure out the reality of it being a hedge (other than a paper profit).

  17. super_trooper says:

    I’m in for a 2x long ETF.

    Sounds like someone should be accumulating Apple at $353
    http://www.ritholtz.com/blog/2011/07/apple%E2%80%99s-big-beat-what%E2%80%99s-next-for-the-stock/
    “Can’t you just hear the prayers of those hoping for a pullback so they can get long and longer? Other than the health of Steve Jobs, the only thing holding the stock back, in our opinion, is that numbers are so good they just can’t be believed. If Apple earns $8.38 this quarter, the stock, at $395, trades for a multiple of 13.6. That is hard to believe given the company’s growth rate. Stay tuned.”

  18. illoguy says:

    You should post a list of market performance on the days you’re gone. It is spooky how often the market vomits. Did not know the markets hate to quit you, even for a day.

  19. dead hobo says:

    Really, the stock freefall is just another Fed inspired asset bubble that has burst. Nothing more, nothing less. The mystery is why everyone provides such over complicated analysis about it.

    As others have stated, the Fed is a serial asset bubble blower.

    What is of interest is, will they blow another one in order to save equities (at least until that bubble bursts) or will they let markets be markets? History suggests they will not learn from their mistakes since they rarely acknowledge the existence of asset bubbles, don’t claim ownership of them, deny they influence their growth, and repeatedly create bubbles that always blow up after the fuel powering them is spent or, in the case of 2007, after the entire economy has been destroyed by a bubble they started.

    There’s no reason to suspect history won’t repeat itself eventually. The Fed will blow another asset bubble and deny ever having done it. HFT will put it to good use and I will treat it as a wealth transfer.

  20. AHodge says:

    when i came back to dealing room from vacation
    i wore a hawaiian shirt to warn everbody how unplugged/dangerous stupid i was
    you should do the same
    this is part goofy incl point 1 blaming everything on greenspan
    as for reckless i buy— in the early market– got some now rather than none

  21. Carolinagirl says:

    Half of the people in the country don’t know what is going on and care less. The other half are scared to death. Let’s hope that the ones who are clueless will spend some money.

  22. AHodge says:

    you “wonder” about BAC and C?
    dont — they are wards of the state

  23. AHodge says:

    with any luck the hedge funds were yesterdays story–

  24. Jack Damn says:

    Good thoughts, Barry. Totally agree.

  25. gloppie says:

    “• There is a fine line separating savvy contrary thought and a reckless fight with markets. Remember, the crowd is what drives the price action, and you want to ride them until they turn into an unthinking mob.”

    I am waiting for the unthinking mob(s)

    Dow 3600!!!

  26. AHodge says:

    but im being harsh
    yu did say random thots

  27. JerseyCynic says:

    Global Grand Policy Failure: Liquidity Traps and Financial Black Holes — CHARLES HUGH SMITH

    http://www.oftwominds.com/blogaug11/liquidity-trap-8-11.html

    Solution 1: Central State fiscal stimulus: failure.

    Solution 2: central bank-induced currency devaluation: failure.

    Solution 3: central bank-induced inflation: failure.

    Every textbook Keynesian solution to escape the black hole of liquidity entrapment has been tried on a grand scale, and failed on an even grander scale.

    The solution is simple: renounce/write down all impaired debt, wipe out the “too big to fail” banks, and restrict the reach and political power of the remaining banks and Wall Street.

    Until we’re willing to do that, then the liquidity trap will remain a black hole that the economy cannot possibly escape.

  28. AHodge says:

    yur good new point is fin sector headed for much lower base profits….
    at least till they blow another fake securitization bubble

  29. Ted Kavadas says:

    RE: “XLF (Financial Select Sector SPDR) has gone nowhere for 18 months…”

    Yes, I agree – the price action of the financials is a cause for substantial concern, yet it largely goes unmentioned.

    Not only have the financials been trading poorly in their own right; when viewed on a relative basis vs. the S&P500 one can also see worrisome trends. I recently illustrated this in a blog post at this link, for those interested:

    http://economicgreenfield.blogspot.com/2011/07/financial-stocks-relative-price-to.html

  30. Greg0658 says:

    auto czar Steve Rattner on that cash now tv CNBC final thought paraphrased “congress is a beast with its own brain and will .. the POTUS (having been in ExecBranch) is not the power broker people give it credit for” .. words have effects (not much of) .. but going to war and telling a FED to QEpi have more effects
    … POTUS greatest power – is searching the catacombs for dark secrets – and running with whats found

  31. Petey Wheatstraw says:

    Orange14:

    “The total amount of gold is fixed (mining really doesn’t add that much to the world’s gold stocks)”

    Gold’s limited quantity (and the cost associated with mining more), is the backbone of its strength as a counter-currency. Gold is the anti-fiat.

    Other considerations:

    • it’s an element, and unlike gemstones (diamonds, specifically), it cannot be created in a laboratory.

    • it’s stable. Unlike silver or other metals, gold doesn’t oxidize, tarnish, or degrade. The gold in King Tut’s tomb was as shiny the day it was taken out as it was the day it was put in.

    • it is compact and portable.

    • it has universal value (everyone from the Queen of England to the Wild Man of Borneo recognizes gold as having value. How much value is debatable, but people don’t throw gold away).

    We do mint gold coins. So do other countries:

    http://www.usmint.gov/mint_programs/?action=american_eagles

    Interesting to note the face vs. the actual price. A gold American Eagle has a face value of $50. Right now, the ask price is $1813.90 (as I said, gold is the anti-fiat).

    Coins are more easily traded than bars, as they don’t require assay (proof of content/purity). They cost more, but the faster transaction time associated with trading it is worth it, to some.

    Precious metals “bugs” worried about trading gold in destitute times usually hold silver to be used for trading on a day-to-day basis, and gold for buying major items — land, castles, arms, slaves, bribes, ransom, and the like).

    All that said, the debate between those who believe gold has value and those who don’t will make the intransigence between Republicans and Democrats look like a minor love spat.

    I’m in the “has value” camp. Right now, the value of gold in fiat dollars is roughly $1800/oz. That’s a fact.

  32. Greg0658 says:

    JerseyCynic @9:02am .. is that in a word “Jubilee” ?
    http://en.wikipedia.org/wiki/Jubilee
    if so .. my my things never change

  33. AHodge says:

    benny yur right

    little sorkin is a major putz just existing much less anchoring
    clever but way out of his depth
    his book has a lot of swearwords and CEO bloviating but no/wrong analysis

  34. dina says:

    you forgot about Bin Laden, 9/11, Saddam, Bush, Iraq war and Afghan war

  35. MacroEconomist says:

    BR, I take some issues with your analysis. There are many more variables than the Fed and a retest of 1030 in 2011 is not a shoe-in.

    You cited the good stuff. VIX at nosebleed levels, Stocks above 200 day MA below 10. Let’s also add put:call ratio at 2008 levels. Those have all been past buying opportunities.

    Things that could go right: EM nations stop raising rates (definitely gonna happen now).
    ECB is forceful with their rhetoric and actions (happening)
    And the wildcard is that the Fed does engage in some sort of QE again

    For the VIX to go to 80 something very dire must happen. In 2008 it was plainly obvious to see the wheels spinning off the bus, today, I am not so sure. In 2-3 years as the economic cycle matures, I can envision it.

    Let’s look at facts:

    Borrowing rates should in some way dictate underlying equity prices. Borrowing rates are lower year on year, spreads are lower year on year. Bullish.

    Earnings: Higher Year on Year. Prospective earnings MAY go down, but to what extent is anybody’s guess. The PMI’s haven’t even printed 50 yet. Jobless claims are not great, but not recessionary.

    So my take is that this is a confidence event. Highly technical in nature. Long overdue. But buying at or around the 80 week moving average has proved to be a smart thing in bull markets.

  36. dougc says:

    Unless my memory is playing tricks on me , the starting point of TBTF was the mortgage crisis in the 80′ s when they discovered that the Saudis had huge deposits in large US banks, so they backed them at 100%. They allowed banks where the Sheeple had deposits to default.

  37. Livermore Shimervore says:

    BR,

    When are you planning to take another trip? I’m starting to see a pattern here. BR leaves the grid and the market takes advantage.

    Folks seem to be forgetting that we’ve not had a serious correction, I mean one that triggers the VIX in an undeniable way since Apple was under a hundo. That’s a long time ago. Consider how many of these long bull runs occurred without a spike in the VIX to these heights? It took X amount to get over 10K, X amount to get over 11K, X amount to get over 12K. I think you get the picture. The string and coffee can has been sending us a message for some time now. Time to let out some pressure in the steam pipe and then fire it up again — driven on companies with aggressive forward growth, like Mapple. 13 multiple? I’m starting to wonder if the Tea Party aren’t secretely running their own hedge fund (short of course).

  38. Chief Tomahawk says:

    That 2009 rally was gifted a suspension of illiquid assets (derivatives) from being marked-to-market. Thereafter it was off to the races to the upside!

  39. [...] Ritholtz: The S&P500 may stabilize around current levels of 1,120-25. If and when that gets violated, the next logical area to test will be near 1,030 — another 10% down from here. … Today’s market action is in large part a reaction to the wildly oversold condition. The assumption is this will be a bounce for days or weeks, than we will see a resumption of the selling until we make a sustainable low. [...]

  40. FWIW,

    I’m 60% cash in my gold trading position and 0% cash in my oil trading position

  41. Canuck83 says:

    > Are US Banks adequately capitalized? The assumption is yes, but FASB 157 (“historical cost accounting”) > makes me wonder about BAC and C.

    heh, my accounting professor liked to call it ‘hysterical cost’

  42. Ramstone says:

    There is a fine line separating savvy contrary thought and a reckless fight with markets. Remember, the crowd is what drives the price action, and you want to ride them until they turn into an unthinking mob.

    What am I missing here, was there anything thought driven about Thursday and Monday, other than extrapolating weak July prints into a 100% guaranteed 1937 depression?

  43. [...] A sustainable low is not in yet.  (Big Picture) [...]

  44. [...] morning’s comments (Random Thoughts: Recent Trading/Market Activity) began with this bullet point: “This entire crisis traces itself back in large part to then [...]