Others
STI to break 3000 depressed by panic selling
Post Reply
1-20 of 30
Before it keels over, a bull market typically leaves a few road signs. Here's what to keep an eye on - from Money Magazine.
By Paul R. La Monica.
1.) Oil prices
Before a bear: Oil prices often surge
Happened yet? Yes
|
Anyone who remembers the 1970s knows that rapidly rising oil prices can be poison to stocks. The quadrupling of those prices in the months following October 1973 (due to the OPEC embargo) helped send a market that was already reeling into brutal bear territory almost immediately.
Rising energy costs just before the 1990-91 Gulf War were bad news for the market too. That's because when oil becomes much more expensive, one of two things generally happens: stagflation or recession.
Those higher prices act like a tax on the economy, slowing growth. And because higher prices make the Federal Reserve think "inflation!" the Fed typically responds by raising short-term interest rates - something the stock market likes about as much as Nicole Richie likes dessert.
Fast-forward to today: Oil prices are up 20 percent year to date, approaching the record high of $78.40 a barrel.
"You have to expect that these rising oil prices will catch up to businesses and consumers," says Timothy Fidler, a portfolio manager with Ariel Capital.
2.) Treasury yields
Before a bear: Treasury yields often run up
Happened yet? Not really
Big market pullbacks tend to take place after jumps in the yield of the 10-year Treasury note. Bear markets in the mid-'70s, early and late '80s, early '90s and 2000 all followed significant rises in bond yields. For example, the yield on the 10-year surged from 7 percent in January 1987 to 10.2 percent just before the October crash.
What about now? The 10-year yield rose from about 4.5 percent in mid-March to 5.2 percent in June but dropped back to around 4.7 percent in mid August.
"If the yield on the 10-year went up to 6 percent," says Jeffrey Saut, chief investment strategist for Raymond James Financial, "that could change investor psychology" - and help send the bull packing.
The state of the dollar affects Treasury yields too. A weakening dollar makes foreign investors nervous about holding Treasuries; when they sell, Treasury prices fall and yields rise.
"That would hit stocks, just like in 1987," says Subodh Kumar, an independent market strategist. The dollar has sagged - from $1.29 to the euro at the beginning of the year to $1.34 to the euro in mid August. If it slips further, that's a warning sign, Kumar says.
3.) Number of rising stocks
Before a bear: The number of rising stocks starts to shrink
Happened yet? Has it ever
Before the market crashed in 2000, something fundamental changed. Though the overall indexes (like the Dow and the S&P 500) kept going up, those rises were being fueled by only a handful of companies, mostly Internet-related ones.
The lesson: Sizable increases in just a few stocks can mask what's going on in the broader market and signal that a bull is nearing a top, says Larry Haverty, a portfolio manager with Gamco Investors, an institutional investment firm. So keep an eye on market breadth - that is, how many stocks are rising compared with how many are falling.
If more stocks on the New York Stock Exchange are hitting new 52-week lows than new 52-week highs, that's a bad sign.
In mid-July nearly twice as many stocks were hitting new highs as new lows - a comforting sign - but by month's end this stat had turned downright ugly.
4.) Consumer spending
Before a bear: Consumer spending sometimes slows
Happened yet? Starting
It stands to reason that when people stop buying stuff, the stock market - populated with companies that sell stuff - heads south. All the major dips in consumer spending over the past 30-plus years have taken place as stocks were just beginning to slide or during prolonged declines.
The tricky part: Measurable drops in consumer spending often occur after the market has already started falling - making it a less than perfect indicator.
It's still important to watch, though, because experts say that slumping consumer spending could help turn what otherwise might have been a mere correction into a true bear.
So far this decade, consumers have been spending away happily - until recently. Retail sales fell 0.9% in June, bad news for companies like Home Depot, Macy's and Sears. And if housing prices continue to drop in many parts of the country, consumers will clutch their pocketbooks still tighter.
Brian Stine, an investment strategist with Allegiant Asset Management Co., a firm that oversees about $30 billion in assets, says, "It could dramatically curb spending and even employment growth." Neither would be good.
5.) Corporate earnings growth
Before a bear: Corporate earnings growth often slows
Happened yet? Just wait for the '07 numbers
During the bull market of the mid- to late '90s, average earnings for the S&P 500 rose more than 12% a year. When companies began warning of slowing profit growth in 2000, stocks started to nosedive.
Now for the current bull. From 2003 to 2006, the S&P's annual earnings rose more than 17%, on average. But the consensus estimate of the market strategists tracked by Thomson Financial is that earnings will grow by only 7% in 2007 - a huge change.
It's not hard to see why. Productivity growth is down. Wage pressures are rising. And remember those soaring energy prices we just talked about? On top of all that, long-term rates in the first half of the year were sneaking up. If that trend resumes, it will discourage companies from borrowing in order to make big investments.
"If liquidity should dry up," says John Fox, co-manager of the FAM Value fund, "that would be a negative."
Translation: It could make this bull look like hamburger.
FYI, last year aug, sti is below 3000 point. This year, history may repeat again.
In a climbing up market, a good news is one step close to crash, and the opposite works for a depressed market like now.
Sentinel files for Ch 11 bankruptcy protection
The firm, which managed about $1.6 billion of assets, said in the filing that its board decided it was 'in the best interests of the corporation, its creditors and other interested parties that a voluntary petition be filed ... in an effort to restructure the indebtedness of the corporation,' according to a filing in the bankruptcy court for the Northern District of Illinois.
It said it signed a letter on Aug 15 engaging the law firm of Goldberg Kohn Bell Black Rosenbloom and Moritz to help with the bankruptcy petition.
Sentinel told clients in an Aug 13 letter: 'We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients.'
The Northbrook, Illinois-based firm said then that 'we donâ??t believe it is in anyoneâ??s best interest if a run on Sentinel took place and we were in a forced liquidation mode'.
That announcement had helped to drive US stocks lower, taking the Dow Jones industrial average to a four-month low, as it added to concerns about failing entities due to highly volatile markets and a credit squeeze.
The bankruptcy filing said Sentinel estimated assets and liabilities both exceeded US$100 million, but it wasnâ??t more specific. It said it estimated it had at least 200 creditors. -- REUTERS
NEW YORK - Sentinel Management Group, a futures commission merchant that provides cash management services, filed for Chapter 11 bankruptcy protection late on Friday.
newmoon, don't gotta bother about the stars/no stars thing. elf for one definitely appreciates your posts. :)
..and i also agree with you regarding the longer term direction of the market (ie, excluding this expected rebound on mon).
but well. stock market is not about egos and who's right who's wrong. elf doesn't care a whit about being right. let's just see how it goes and play exactly according to the trend.
cheers to all! heehee.
PS: stevento, do keep posting. it's very informative and useful, esp the chart you put up.
I m already seeing a lot of STARS in the market. You can stare blankly into it :)
Nice observation Newmoon.
I agree with you about the economical cycle.
Couple of things will derail the world economy:
- US Sub Prime Mortgage and UK Sub Prime Mortgage as well
- YEN carry trade: Big impact on the Emerging Markets that borrowed heavily on YEN denominated loan
- Credit Crunch from all these, redeem cash from sell off of assets in Asia.
Economic cycle has turned southwards.
No stars is better than see stars.
It is nut too late to sell into the expected rebound in the next few days as there are many stale bulls waiting to exit the market.
However taking a loss for many investors is too painful and admitting that they have made a bad trade is too damaging to their ego and self image .The same situation applies to fund managers as they are also human except that they have lost their client's money and are less concerned except that they may get the boot.
And so the game goes on until the bulls capitulate.
I notice that in this forum this bear thread has no stars but my past bull threads had many stars so it stands out like a sore thumb.
The business cycle is not a one way street.
china company? which one?
I feel like taking leave tomorrow and stay at home full time tomorrow..
Labroy Marine, Cosco, Ouhua, Breadtalk, Olam, Raffles .. all in my VIP list... I might contra within my means, went in early morning, and cash out before it closes, shouldnt be a problem..
Pick up fundamenatlly strong China companies, oil and oil related stocks if PE are not too demanding
if you pass 1987, 1997 crisis and still strap in 2007, it means you didn't learn anything..
this correction is a golden chance for us to pick up good stock... vest with no fears!
newmoon and stevento:
Very good posts that remind investors on the underlying risks! The politicians and policy makers would have us believe that things are rose-tinted in truth the foundation built on cheap money can give way. Respectfully, I don't think anyone can predict a recession in 2007/2008 with certainty but it is sure does makes sense to trim one's portfolio and travel lighter.
To share some observations, i went to two courses on technical trading yesterday. The sheer turn out at the two large conference rooms was impressive. The participants whom i spoke with, many of them have already started investing/trading even before they know anything about FA/TA, were all largely bullish about the markets and are deeply convinced that things can only improve. One even mentioned that the hammer candle formed on Fri is a sign to buy. Can't really argue with that ... but i'm gonna factor that into my gameplan.
There will be a buying frenzy by the newbies in the first half tommorow before the bear start to swallow them up. A painstakingly honest advise from newmoon. A wise man indeed!
With admirations
WT
Well, sentiments have changed. IT is the same old pattern occuring. You find it in 1987, 1997 and now 2007.
Reading the forum I think at least 75 % of the participants are bullish and do not wish to hear that a severe correction is not over and so you get bad ratings for bear talk.
With the discount rate cut there will be a technical bounce maybe for a while to the neckline of 3300 but the basic problems in the economic expansion based on debt are far from being solved.
Who will save the leveraged hedge funds ,the LBOs, the quant funds,the carry trades etc?. Cutting interest rate does not solve the debts of leveraged funds with negative equity but it only prolongs the agony. As the losses are revealed another shoe drops and the testing of the recent bottom begins and we pray it will hold .
Seasonally August , September and October are not favourable for stocks so expect more volatility and downside in the next few months.
In the meantime the bulls can only hope and pray that the market by some miracle moves in their direction and that there is no recession (which is long overdue) on the horizon.
George Soros prediction in 2005 when he was in Singapore - Global recession in 2007 due to US housing slump
Dear Newmoon... :
Your bearishness is shared by me... (I believe you are not among the 'frogs')... 
Especially when I scour through all the stocks' charts.
I've never seen anything like his before...
although the market didn't come crashing down overnight, the rapidity and magnitude so far of the falls in most stocks gives one real cause for concern of the immediate future of the market.
Stocks going below their previous lows within two weeks portends something real serious!.
Stocks falling through support after support and within 2 weeks the falls are so drastic that it's no use for us to pretend to be bullish anymore. ...
Dear
Newmoon...
:)Heated frogs don't like to listen to any bearish talk...
Their bullish belief is so very strong they can't conceive of downtrends ... hehe...
The dicount rate cut was already kown by 8am Singaore time and reported by the asian wall street on 17/08/07 but no official announcement was made until 8pm singapore time.
This does not address the problem of predatory lending and the instituitions invoved in reckless behaviour will be seen to be rewarded instead of being punished .
During the asian crisis IMF raised interest rates and said that we deserved to be punished leading to riots and suffering .Are westerners a different breed?
Sell the rallies as the diagnosis is wrong and hence the remedy is pallitive and will lead to the worsening of the disease in the near future.
