Friday, October 24, 2008

Black Friday Panic Grips World Markets

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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As I write this before the trading day begins in the U.S. markets, S&P500 futures are limit down. After having fallen 60 points, regulators will not let them trade lower until the market opens. Dow futures were down 546 points and Nasdaq 100 futures 83 points when the trading floor was established on the S&P. U.S. stock futures began sinking during the bloodbath that took place in Asia overnight and dropped further on bad news in Europe. Selling exhaustion, necessary for the market to bottom, is now a real possibility sometime between today and next Tuesday morning - assuming the U.S. authorities don't close the markets.

Even though the U.S. financial media reported yesterday's market action as positive, evidence of possible problems today could be seen in how stocks traded. Volatility, never a sign of a healthy market, was even more off the charts than it has been recently. The Dow sold off in the beginning of trading and then rallied approximately 400 points in a little more than an hour. Then in the next three hours it fell 600 points. In the last hour and a half it rallied almost 500 points to close up 172 points. Anyone of these moves is extreme for an entire day, let alone an intraday move. The VIX (the volatility index) hit a new high of 96.40 even further above the 55 reached in 2002, but still not at the 150 level in the 1987 meltdown. Watch this indicator for a sign of a possible bottom.

Overnight the Nikkei in Japan fell 9.6%, closing at 7649 or just above the 2003 low of 7603. The Nikkei has sold off for 18 years and counting as of last night. Double digit losses hit Korea, down 10.6% on the day and 20% for the week, and India, down 11%. The Hang Seng in Hong Kong and the Straight Times in Singapore were both down 8.3%. Australia was the only bright spot in the region and experienced only a modest loss. Oil fell to $64.58 despite OPEC announcing a cut in production. Selling of the U.S. dollar against the Yen was described by commentators as 'relentless'. The Yen reached 92.76, a thirteen year high.

Europe opened to Britain reporting a 0.5% drop in GDP (not nearly as bad as what is happening in the U.S. economy, just more honest). The FTSE 100 was down down in the 7% range in mid-day trading and the DAX and CAC-40 had fallen more than 8%. The pound was getting hammered, trading at 1.54 to the dollar and the euro was trading around 128. Denmark had to raise rates to defend its currency, as Hungary did earlier in the week. Hungary, along with the Ukraine and Pakistan are seeking help from the IMF. As usual , emerging and smaller markets are likely to experience the biggest losses when global selling hits.

At the moment, look for support on the Dow and S&P 500 at their 2002 lows, around 7200 and 775 respectively.

NEXT: Landslide Elections and the U.S. Stock Market

Daryl Montgomery
Organizer, New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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