Daily Investment Interpretations
May 7, 2010
The markets fell again today: May brings stock mayhem. The NASDAQ Composite
to close at 2,265.64, the Dow lost another 139.89
and the S&P 500 fell
to end at 1,110.88. Oil dropped $1.70
to $75.11 a barrel, while Gold added $16
to close at $1,210: Gold surges on 'alternative currency' appeal.
The VIX jumped 8.15
The VIX jumping from 16.6 to 41 in two weeks is one of the stories here. The last time the VIX was this high was on April 7th of last year, after peaking at 51 when the indices bottomed on March 6, 2009.
That's a lot of angst.
The indices are relentlessly following trend lines down: Worst first five days of May in Dow's history. The rate and persistence of this selling suggests to me a shift in the markets: 'Sell in May' adage in full force. So far, there's no sign of a bottom forming.
This is clearly more than a routine pullback. Since the U. S. recovery is continuing apace: 290,000 jobs created, That's the best job growth in 10 years, and Permanent Link to Jobs, Jobs, Jobs, what's happening must portend problems six-to-nine months out.
Since the indices have all broken below their 50-day moving averages, it's past time to have left the party.
The number one problem facing the world seems to be the European debt crisis. In Permanent Link to A Cross Of Gold, Paul Krugman observes that switching to the Euro without a central government set the stage for the economic straitjacket in which Greece finds itself today. In Permanent Link to Greek End Game, he explains how tight Greece' straitjacket is. And in Permanent Link to O Nao!, he observes that Portugal's interest rates are "where Greece was only a few weeks ago". He suggests that Anno Dominie 2010 may be shaping up to be Anno Domino.
In Todd Harrison dissects the 1,000-point plunge, the author revisits the crushing debt overhang problem again, and relates that his antennae are picking vibration like those he experienced in September, 2008. (He suggests that a Black Monday may be in the offing.)
In 5 Myths about the European debt crisis, the authors dispel some of the overheated concerns about the European debt crisis, but close on an ominous note.
What you should do about market's selloff also ends on a cautionary, if not ominous note: "Greece is the wild card. The euro zone crisis could end with Greece, or that country could be the tip of a giant iceberg, as subprime mortgages were to U.S. financial markets at the outset of the credit crisis."
But in the end, the markets will rebound. Right now, they're down about 9%, which makes selling less attractive than it was. There will come a time to buy, and the right moves can generate significant profits as the markets move back up. (In the end we can anticipate a buying opportunity.)
Two more-optimistic articles are Art Hogan calls for calm — it's not an omen, and Dow 12,000, sooner than you think