Stock Markets worldwide are selling off

At this time the Asian Markets are experiencing large losses as the United States economy as well as economies around the world are suffering from recessions and high inflation. Currently the worldwide markets are going through some extreme sell offs with the Nikkei down 4%, Strait Times down 3.2%, Australia S&P/ASX down 3.1%, and the Hang Seng down 2.7%

Tonight the US dollar has hit another record low dipping to 73.56 and Gold has hit another new high at $980.60. The risks of some United States banking institutions failing is being absorbed by the markets worldwide. At first the idea that some US banks may fail was met with some skepticism, but the idea of this becomming a reality over time is taking hold. Jim Marino of the FDIC’s Division of Resolutions and Receiverships said last week in an FDIC report:

The notion that a bank is too big to fail shouldn’t be out there

The prospects of financial institutions facing even greater losses is also playing on global markets. It has been said many times that the sub prime crisis would be contained to consumer real estate. Our long time readers know that we have argued against this premise and said it would spread. Commercial real estate problems will be next in the credit crisis and real estate implosion. Once commercial real estate loans begin to deteriorate it will bring financial institutions to their knees. Now it appears that the media is catching on to the possibilities of a commercial real estate crisis in the making which will further increase the risks of bank failures. The Wall Street Journal reports tonight:

WSJ LOOKS AT THE IMPACT OF THE CREDIT CRISIS ON SMALLER BANKS; SOME SMALL BANKS HAVE AN INCREASING LIKELIHOOD OF FAILURE
- WSJ notes that many of the smaller US banks financed the building projects of leveraged builders and now these cash-strapped builders are falling behind on interest payments.
- WSJ notes that some of these smaller banks are accumulating portfolios of delinquent loans and face increased pressure from banking regulators to reassess and hedge these troubled loans, and those banks that don’t have enough capital set aside or are not diversified enough have an increasing likelihood of failure.

We would add here that it is not isolated to smaller banks only. On the contrary, some of the nations largest banks are the biggest investors in commercial real estate. While a larger bank may be better hedged against those loan losses it will still impact the banks earnings, furthering eroding the financial sector.

The largest declines in the Asian markets this evening are in the financial, automobile manufacturers, insurance, and steel producer sectors. Toyota is down significantly on the Japanese Nikkei / US dollar changes. Nippon Steel is also down significantly as they reported tonight that raw material costs are eating away at their profit margins.

Speaking of the automobile industry, Ford Motor Corp (F) has been downgraded to a ’sell’ by Citigroup. Also of note concerning the auto industry is a dealership not far from where I live. A Chrysler dealership which had been in business for over 40 years has closed its doors for good this past week. The showroom is now empty, the lot is empty, and the doors are chained shut. A sign of the times.

Lets talk about housing for a moment, Brian Louis and Dan Levy of Bloomberg have analyzed the housing market and discovered that the number of vacant homes in the United States is at levels not seen since the 1970’s. Newly constructed single-family homes are sitting empty at amounts highest on record. The full article text can be read HERE. This is some good reporting by Bloomberg.

Now for some charts…

 

 

 

 

 

 

 

 

 

(Morgan Stanley World Index)

This monthly chart of the Morgan Stanley World Index is made up of stocks from the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom. This index is showing us that the global markets are entering into a bear market. Those who claim that you are better off investing in foreign markets need to only look at this global index to see that the United States is NOT the only country suffering.

 

 

 

 

 

 

 

 

 

(S&P 500 daily chart)

Notice on this daily chart of the S&P 500 that Friday’s sell off was a hard confirmation of a triangle pattern failure. We have some support just below, however I feel this support is minor when weighing other factors of the intensity of Friday’s selling. The support may offer some short term price support but the longer picture is for more declines in the major indices.

 

 

 

 

 

 

 

 

 

(Nasdaq weekly chart)

The Nasdaq is approaching a very dangerous region in our technical analysis. When the Nasdaq is viewed on a monthly chart the price advances since 2004 resemble a long bear flag pattern. On this weekly chart we see that the price level is very close to the trend support line. Should the Nasdaq fail this trend support and close below it, then the Nasdaq will have made the move into a long and steep bear market. We will be watching this one closely for sure.

 

 

 

 

 

 

 

 

 

(Natural Gas Fund - UNG)

Caution still needs to be advised on commodities, they have advanced too fast to sustain further moves at the same magnitude without some consolidation. While Natural gas has made some impressive moves lately, it is still in a region of possible resistance.

At this time the United States S&P Futures are down 0.60%. The Fed Funds Futures have the chances of a 75 basis point rate cuts by the Federal Reserve at close to 75% tonight. Remember that the FOMC meets on March 18th to discuss their next move. And we can’t rule out another emergency rate cut if the markets continue to decline rapidly.

We remain short on the Dow Jones Industrials and we are currently sitting on a 6.7% gain. (The ‘open trades’ page will be updated soon). Because we have been avoiding individual stocks and concentrating on the indices explains why there have been no additions to the watch list. In this market environment it is to our advantage to be trading the index funds at this time.

Some Sunday thoughts

Market Analysis,Economy,Housing Crisis,Nikkei

First a reply to a comment from Dave…

The chart of the World Index is meant to show underlying weakness, not as a tool for deciding to buy or sell. You mentioned that the bull market has been strong, on the contrary, all of the technical indicators and market breadth charts have shown that while the markets have advanced the supporting indicators have been softening. This is what is called a divergence and it is important to keep them in mind going forward. The new highs and new lows index chart clearly shows that while the market has been advancing over the past year the new highs has been falling. There is no argument or discussion with regard to what that means. It is a clear indication that the markets have been advancing on fewer and fewer stocks rising. This is visible on the advance / decline charts as well. Just how long do you think the broad markets will keep going on Apple, Google, Solar stocks, and some shippers? Sorry, but a handful of momentum stocks will not support our entire stock market.

We will continue to look for long positions as well as short positions to trade. But we NEVER lose sight of the big picture. For it is the big picture that tells us where we are likely to be headed.

Some news items over the weekend:

• Japanese newspapers are reporting that the Bank of Japan may cut Japan’s GDP yet again, the article reports that Japan may cut the GDP to 1.3%, down from 1.8%. Recall the chart I showed of the Nikkei Average. I am concerned about the Japanese market going into a long down trend.
• The Financial Times reported this weekend that over the last 6 months commercial and investment banks in the United States have had to raise $83 Billion dollars in liquidity. This is an all time record. Now think about this for a minute if you will, never in history until now have banks had to raise so much mi9ney in such a short period of time in order to have enough capital to operate. That does not give me a great deal of confidence in our financial markets health.
• A famous and well respected economist, Robert Shiller from Yale University in an interview with the London Times said yesterday that the losses resulting from the housing crisis will likely triple over the coming years. And goes on to say that the current losses which can be attributed to the housing crisis have already hit $1 Trillion Dollars.

 

What a drag!

Markets closed down today and good news is hard to find.  Sectors that were hot, shouldn’t be. And sectors that were hot yesterday are putting a hole in portfolios today.  Nobody ever said the market makes sense.  It’s even been said that one must put logic aside if they want to be successful in trading.  While I don’t agree that you can ever be successful without logic, for very short term trading I think you can put aside certain fundamentals and trade the “hot” sectors.  But, (and that’s a big but), you better not get reckless and start believing the ride will never end. 

The alternative fuel sector has been hot, now it’s not.  POT (Potash), a popular fertilizer stock, took quite a hit today because of news ethanol is no longer the “in” thing and corn prices will be coming down (thankfully).  This means farmers will not be planting as much corn around the world and traders/investors think POT might take a hit.  In the long run, I don’t think they will get hurt too badly, as they pretty much corner this market, and farmers around the globe will continue to plant crops.

Solar plays have been popular, as well.  Today, LDK’s CFO stepped down and it was said there were irregularities in their financials and has been reported to the SEC.  Apparently this was reported a month ago. True or not, LDK’s share price took it on the chin, trading down to 46.60 after hours.  JASO, another popular solar play, traded down as well.

China stocks are popular and are traded by daytraders whenever they gain a little momentum.  Just watch out for that “China Syndrome” (the melt down) and don’t stay at the party too long.

It’s great to trade the hot sectors.  Whether it’s for a swing or just a daytrade, as long as you remember your time frames and your stops.  Reminds me of that hot, popular boy I dated in high school, thought he was headed for great things.  Met him again years later, and, well, let’s just say I was glad I got out of that relationship when I did.  It’s the same with these momentum plays: know when to get out. 

Update

The Asian markets have been open for a little while and are down significantly. The Hang Seng is down 3.6%, the Nikkei is down 2.6%, Korean Composite down 6.2%, Taiwan down 3.5%. All of this is likely in sympathy to our markets decline. Recall that recently that Japanese mega banks have disclosed that they have exposure to our sub prime market. So our credit crisis is becoming theirs as well.

Early Asian Market trading

The Asian markets open only a short time ago but the Hang Sang and the Nikkei are down large. Down 2% so far.