Sellers Show Up… Again
by Lance Lewis
Asia was lower last night with Japan and Hong Kong both falling a couple percent but just ever so shy of new lows. Europe was leveled by 4 percent this morning resulting in a new low for the move in most of the major indexes. The US futures were lower. We gapped down at the open but shy of our lows from yesterday. The remainder of the day was spent mostly dancing around in a chaotic manner, all the while slowly but surely edging lower. The last 30 minutes saw a bit of a leap off the cliff and sent us out at a new low for the move in the S&Ps. The NASDAQ faired a bit better and did not hit new lows, while the Dow under performed and took out its lows early in the morning. Volume backed off a bit but was still chunky (1.9 bil on the NYSE and 2 bil on the NASDAQ.) Breadth was 5 to 1 negative on the NYSE and 3 to 1 negative on the NASDAQ.
Phillips Electronics, Europe’s third largest semiconductor maker, warned this morning that revenue would come in about 18 percent light due to slumping demand for handsets. Of course that news was ignored over here as NOK and handset chip suppliers RFMD, and TQNT all had a bid because a few people are buying cell phones in the US after all the publicity from the WTC disaster, and I think NOK is probably still spreading its hopes of a blowout Q4, which isn’t going to happen. I think you can pretty much count on there not being any sort of low for this move in equities till that silly trade breaks down and those 3 stocks get sold and sold hard. The rest of the semis were chased in the early going as well. That bid didn’t last long though as the SOX rolled into the red and finished down 6 percent led by testing equipment maker TER, which was smoked for 12 percent. Flight to “big” didn’t really pay off today as MSFT was hit for 6 percent, INTC 7 percent, and DELL 8 percent. IBM, however, broke ranks and continued to hold the line, only drooping 3 percent back to yesterday’s low. I’m not going to go through and list all the damage in tech. Suffice to say that most everything was under pressure except for some scattered strength, and I am using the word “strength” very loosely.
Financials were heavy… again. The BKX fell 4 percent, taking out its March and October 2000 lows. The XBD fell 6 percent to a new low for the move. The derivative king, JPM, was busted for another 7 percent and a new low. GE fell 7 percent as well, also to a new low. Credit insurers were crushed again as ABK fell 5 percent and MBI 9 percent, both to new lows for the move. FRE and FNM continued to roll over as both fell 4 percent and are closing in on their recent September lows.
Retailers were hit again as the RLX edged down to its October 2000 low. WMT continued to hold up, only edging down an eyelash. HD was under a little more pressure and fell 7 percent to a new 52-week low after the Commerce Department told us this morning that housing starts had fallen 6.9 percent in August to the slowest pace since October of last year. The homebuilders obviously didn’t like that either as stocks like LEN and TOL were busted again.
Disney (DIS) had a little wild action today. Recall, DIS “went on margin” recently by floating a bunch of debt so it could buy back stock. Well, today there was a large margin call and forced liquidation of an individual employing a similarly leveraged strategy, rumored to be one of the Bass family. That margin call resulted in 135 million shares being partially dumped to Goldman Sachs (GS) and the rest being bought by (you guessed it…) DIS. Talk about passing a hot potato…
Oil fell 38 cents. The XOI and OSX both fell 2 percent to new lows for the move. Gold fell $2.50, and lease rates pushed up a touch. The HUI rose 2 percent and just shy of a new high for the move off the recent lows as the march towards the May high continues. The US dollar index rose an eyelash. The euro slipped a hair. The dollar continues to look very vulnerable on the charts. Who knows when it is going break, but when it does it will likely be a move down of unusual size, to put it mildly. Treasuries were lower in the long end as the yield curve continues to steepen with the yield on the 10yr rising to 4.73%.
I mentioned this yesterday in passing but I want to make it clear in order that everyone understands what is going on here. We is developing here is a stock market crash, and I don’t use that word lightly. I’m amazed that I haven’t heard a soul call it by name yet, but that’s what this is. Now, it could end tonight, tomorrow, or next week or next month. But everyone should understand the animal that they are dealing with here. At this point, it’s more of a “crashette” (as my friend Bill Fleckenstein calls it), but if we get a panic and the bottom falls out at some point in the near future, it could become a full fledge crash. I’m not saying that to scare anybody. I’m just pointing out the risks, and right now that is a very real risk I think.
Tomorrow is a triple witch expiration, and anything can happen. We could get a huge bounce, or a complete collapse. There’s no way to know. Tonight, President Bush will be making a speech that could either spook people or reassure them so that speech and the reaction to it may determine to some extent what we see tomorrow and exacerbate the mechanics of the expiration. We still have not seen any real panic. Sure there have been some margin calls, the put/call ratio has moved up a little, and the VIX hit a new high for the move today indicating there is stress in the derivative system (it’s of course still a long way from the 60 level we saw in 1998 and the 150 level that we saw in 1987.) But that’s still not the “get-me-out at any price” type panic that you typically see at a true panic low. Consequently, I’m afraid we’re still destined to go lower (probably a lot lower), but bears shouldn’t get too cocky here because a sharp countertrend bounce could appear at any time. Even if we fail to get a bounce somewhere in here (in which case we will see a panic), prices don’t fall vertically forever, and once a true panic has occurred and there has been a resulting flush you can put in lows that could hold for a while, even in a secular bear market such as we are currently in.
prudentbe@r |
