Commodity Shortage Disaster in the Making

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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The government is planning on doing something about those pesky speculators that keep driving up the price of commodities. Even though this has been tried thousands of times previously and has NEVER worked - and even though we have the example of the complete economic collapse in Eastern Europe that this behavior caused - and even though last falls ban on short selling of financial stocks didn't prevent their prices from falling off a cliff - this will not discourage the U.S government from creating a new mess in the commodities markets. It is true that some people never learn and it appears that many of them get elected to political office or work as regulators.

The CFTC (Commodity Futures Trading Commission) announced yesterday that it will hold hearings this month and next to explore the need for government-imposed restrictions on speculative trading in oil, gas and other energy markets (even though natural gas is at a multi-year low and oil is 60% off the high it reached one year ago). The CFTC can also set restrictions for other commodities as well and can change margin requirements for trading (and this is also being bandied about). ETFs, which are used as investing vehicles by small investors, were especially singled out for restrictions.

It has been pointed out that insiders like the floor traders and commodity trading firms in Chicago are unlikely to be impacted by the CFTC proposals that are supposed to be protecting the public and not the industry. For those not paying attention, commodity prices nose-dived before this news was released, not after. Probably just an amazing coincidence and not the insiders getting the word before the public (if you believe that, I have a bridge in Brooklyn that I'd like to sell you). It is quite clear that if anyone gets disadvantaged from changes in CFTC policy, it is meant to be the small investor who relies on ETFs and not the big players.

Political pressure is being put on the CFTC by senators Bernie Sanders, who is a Socialist even though the media describes him as an independent and Bryon Dorgan, the biggest economic ignoramus in congress -and that's really saying something, and congressman Bart Stupak from Michigan who wants lower oil and gas prices to protect the state's auto industry (or what's left of it). Attempts to control oil and gas prices were last tried in the U.S. in the early 1970s when Nixon imposed wage and price controls. Oil producer profits were cut to such an extent that U.S. oil production dropped substantially. The U.S. which had been self-sufficient in oil up to 1969, then became extremely dependent on foreign sources. OPEC was then blamed for the shortages and big price hikes that followed, but it was U.S. policy that made it all possible. Did the government blame itself? Of course not! It was those rapacious speculators and evil foreign forces that made it happen. Historical analysis of past inflations shows very clearly that without exception speculators and foreigners are blamed for inflationary price rises that originate with government printing too much currency and then attempting to limit the mess it engendered with price controls. This scenario has played out hundreds, if not thousands, of times. This time will be no different.

The forces of economics can no more be banned by government action than gravity can be outlawed. So what is likely to happen? Since commodity trading is not limited to the U.S, but large active markets exist in London, Tokyo, Hong Kong, Singapore and up and coming Dubai, expect trading to increasingly move to those places. Dubai in fact wants to capture more commodity trading business. When U.S. policy hands this to them on a silver platter, except to hear how those scheming Arabs stole this activity from the U.S. ETFs also exist in the English, Canadian and Australian markets (and some others), that American small investors can get access to. Investment money will simply move out of the U.S. - at least until the government tries to impose capital flow restrictions to prevent this (expect this at some point in the future).

If prices of oil are held down temporarily (and it will only be temporarily) by CFTC restrictions or other government action (yes, this will be coming) you can expect shortages in gasoline, heating oil and diesel. There were long gas lines in the 1970s for good reason. While people had to wait a long time and sometimes could only gets a limited quantity of gas, they still got some gas. Heating oil was in danger of running out in certain places - like Minnesota - as well. Things could get much worse this time, since shortages are the only thing you can rely on from price controls. Even worse, prices always wind up higher than they would have been if the price controls had never been imposed in the first place.

One more piece of advice. In case the U.S. government does decide to outlaw gravity and some politician tells you it's safe to jump off the capital building. Make sure you reply, "You first".

NEXT: Government Price Controls in the Making

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


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.

North Korea, OPEC and Precious Metals

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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The news putting the markets on edge this morning is that a nuclear test and missile firings took place in North Korea. A country that barely has electricity (check out a nighttime map of the world to see what I mean), is supposedly threatening the world's security. The only thing missing from the story was an allegation that North Korea loaded the missiles with mutated swine flu virus and aimed them toward Dick Cheney. Safe haven trading raised the value of the U.S. dollar, which was about to break below major support. Counter intuitively gold and silver had a sharp sell off on the news when they should have gone up. Light sweet crude fell below $60, but quickly jumped back above that level. OPEC is meeting on Thursday and this will dominate oil news for the next few days. Its membership is worried about reducing the supply of oil in storage.

While OPEC's stance should be bullish for the oil market going forward, you would never know it if you just read the mainstream media headlines. These are emphasizing 'OPEC unlikely to cut production quotas at May 28th meeting'. Since OPEC is more likely to increase production during the heavy oil use northern hemisphere driving season, this is not exactly either surprising or negative news. The Saudis, as well as other OPEC members, have furthermore stated quite clearly that their goal is to get global stockpiles of oil down from the current 61/62 days of forward cover to the average 52-54 days. Their current price target for oil is $75-$80 a barrel, the same as the New York Investing meetup's. Don't expect production increases or the possibility of further production cuts to be off the table before both goals are met.

In the near term, oil prices should also be supported by rebel action in Nigeria - a major source of oil for the U.S. News reports today are stating that rebels have sabotaged a major pipeline run by Chevron in the Niger delta and this has cut off 100,000 barrels a day of supply. The most amazing thing about this news, is that I first read about it on a wire service report nine days ago. I have been looking for it to appear in general news coverage ever since. You should ask yourself why major news that would raise the price of oil was buried by the U.S. media? If this was an isolated incident it could be written off as mere coincidence. However, as has been pointed out numerous times in this blog, oil coverage has been incredibly slanted toward the bearish viewpoint for months now with the use of misleading statistics and one-sided quotes from analysts who only hold negative views. The tenor of coverage looks like it has been changing in the last few days though.

Other than oil, you need to continue to pay attention to gold and silver. Spot silver, traded above its key resistance level of $14.50 at the end of last week getting to around the $14.80 level. While the spot price fell to $14.30 on the North Korean news, it was back up above $14.50 by 9:00 AM. A tug of war between the bulls and bears seems to be taken place currently at that price. Spot gold fell almost to $940, but shot back to $950 pretty quickly. Once gold breaks above about $965 level, it will be able to test $1000 and go on to new all time highs. The bears are really coming out of the woodwork in the last few days though to try to talk gold down -
a number of them have target prices for gold of $600 and major short positions on the metal. Soon they should be screaming as if they were hit by a North Korean missile.

NEXT: GM Sage Continues; Gold Becomes the New Oil

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

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.

It's Not the News, It's How the Market Reacts to the News

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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At the moment, world stock markets are acting more like bull markets than bear markets. In a bear market all news is bad and in a bull market all news is good. There is still plenty of really bad news out there about the economy and corporate earnings - and the media is flooding the airwaves and using a lot of ink on stories of bad news, more bad news and still more bad news. The average investor will act like a deer caught in the headlights frozen in inaction. Meanwhile stock prices keep going up and up because professional traders are buying. What the market does is the only thing you should pay attention to. If any of the reporters writing these stories actually knew anything about making money in the stock market, they would be successful traders making a hundred times more money than they do as reporters.

Last week Alcoa (AA) offered a perfect example of the bull market reaction to news. Earnings were not just bad as everyone thought they would be, but were even worse than expected by 3 to 5 cents (depending on which analyst survey you looked at). The stock actually opened up the next morning and then settled down for a small loss on the day. I had sold out my position (purchased off the bottom) in anticipation the earnings would be worse than expected. However, since the market obviously didn't care about that, I bought the stock right back the next day (at the market, I don't take the risk of not getting a good bargain by setting limit orders). Alcoa then had a big rally on Thursday. When a stock goes up like this on bad news, it indicates all the bad news has already been priced in. When that happens the price can only go up. You didn't read about that in the mainstream press however. All you saw was negative coverage of how poor the aluminum business was last quarter even though the market couldn't care less what happened last quarter.

As we detailed in last weeks meeting, the press has been not just irrelevant when it comes to the coverage of the oil market, but out and out misleading about the actual state of affairs. The oil bears have managed to drive the price of light sweet crude below the 50.50 breakout point 3 times so far. I have bought more oil related stocks at each point (Recently I started purchasing drillers which are usually the last to rally). Nymex oil closed the trading week at $52.24 on Thursday. The media is doing its best again today to highlight the negative view on oil. The IEA, International Energy Agency, is now predicting that global oil demand will fall 2.4 million barrels a day this year. Media stories didn't mention any statements from the agency concerning predictions on supply (which is falling rapidly). Meanwhile Iran's oil minister, a source that would not have any credibility with U.S. readers, released a statement that the price of oil should go to $75 to $80 a barrel and the media highlighted this. In response, renowned oil "expert" Victor Shum, a source that should have no credibility with U.S. readers, said, "nobody, even in OPEC, expects the price [of oil] to get to $75 this year". Obviously, Mr Shum doesn't follow the New York Investing meetup. If he did, he might improve the accuracy of his forecasts.

People don't make money in the stock market because they focus on the irrelevant - and the mainstream media is more than willing to help you do this. Pay attention to what the market is actually doing if you goal is to make money investing. Then you need to take action. If a consumer goes shopping and sees an incredible bargain at 90% off, they don't usually say I'll come back next week to see if its 95% off or I'll come back and get it in a couple of hours when I'm done with my shopping (lots of luck that it will still be there). People do this with stocks all the time though and this is one of the major reasons the average person has trouble making money investing.

NEXT: Rallies Make You Rich, No Matter What the Type

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

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.

When Bad News is Good News and Vice-a-Versa

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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The U.S. government claims that construction on new homes and apartments jumped 22% in January. Why not 222% or 2222% or the future inflation rate of 222,222%? If you are going to publish fantastic figures you might as well go for some big splashy number that indicates every existing house in the U.S. had its land subdivided and an extra house was built on it. Well, maybe people wouldn't believe that one (although the mainstream media would publish it as if it were true). Somewhat more realistic is the PPI report released today which indicates February wholesale prices went up 0.1% after a 0.8% rise in January. Dropping oil prices are still lowering the numbers, although even with much cheaper oil, the coming big deflation that the media reported all last fall and this winter has yet to show up. Oil prices have already begun inching back up and even the highly manipulated government figures are likely to soon be showing that inflation is rising again.

Oil acted quite bullish yesterday. Even though OPEC refused to cut it production quotas at its Sunday meeting, oil prices were essentially unaffected. While oil went down about 3% in Asian trading after the meeting, it recovered its losses by the close in New York. Nymex light sweet crude is trading at 47.50 a barrel as I write this, almost as high as its gotten since the double bottom made in the high 33's on February 18th. When an investment doesn't go down on what should be bearish news, what will make it go down? The market is telling you that the selling is done (this works quite well for analyst downgrades by the way, if a stock goes up on a downgrade there are no sellers left). DXO, which New York Investing said was a good purchase on the evening of February 17th is hitting its highest high since that date today.

Sometimes assets do indeed go down on bad news, but don't hit new lows. This is also bullish. You should be watching Alcoa (AA), which had horrendous news yesterday. While the dividend cut was expected by any rational person, the issuing of new stock and convertibles is dilutive for current shareholders. AA's yearly low was 4.97 reached on March 6th and it has not been breached yet in today's trading with the low so far being 5.37. AA is not the first metal stock to cut its dividend, reduce capital spending, etc., etc. Freeport McMoran Copper and Gold (FCX) did so last December 3rd and the stock bottomed 2 days later at 15.70. It has gotten over 38.00 since then. When really bad news comes out, you need to ask yourself what else could happen. If there is nothing worse, how can the investment go down further? Unlike FCX, AA does have one additional risk and that is it could be thrown out of the Dow Jones Industrial Average.

The stock market is filled with beaten down stocks at the moment. To find the real bargains you need to determine if the company will still be in business tomorrow. In some cases, the answer to that is no (think financials and anything related to them). In others like FCX, which is the lowest cost copper producer in the world, the demise of the company would mean the disappearance of an entire essential industry. If the industry isn't going to disappear, the lowest cost producer will still be around. You should find out who these companies are for every commodity.

NEXT: What Happened to Deflation?

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

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.

Today's Economic Lunacy

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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If ever there was ever any doubt that lunatics are running the economic asylum, we received more than enough confirmation of it today. Fed chairman Ben Bernanke expressed confidence that the current recession (actually depression) could end in 2009. It has been revealed that much of the AIG bailout money went to pay other banks and brokers who were also receiving bailout money and for executive bonuses. OPEC caved into pressure from the West not to cut oil production because it would hurt the world economy, as if this could somehow undo all the damage the Central Bankers were doing.

Fed Chair Ben Bernanke made his remarks about the recession on 60 Minutes (they should have resurrected the 1960's classic show, 'The Twilight Zone', for his commentary). While media headlines this morning blared that Bernanke said the recession would be ending in 2009, he actually added the important caveat that this would only happen if the banking system is stabilized. A realistic assessment of the chances of that happening can not be found in most press coverage. Bernanke further stated (try not to laugh) the largest U.S. banks are solvent and "they are not going to fail". The large U.S. banks are of course insolvent, although it is true that they are not going to fail because the government will pump an infinite amount of money into them if necessary to prevent this from happening. U.S. taxpayers should not worry about this however. Bernanke assured us last night that the bailout aid is not coming directly from tax funds and is "more akin to printing money than it is borrowing." Isn't that the approach the Weimar Germany and Zimbabwe took?

Government money printing is bad enough as is, but the news out of AIG over the weekend shows just how much of this is going to waste (hey, don't worry, they can always print more... and they will). Of the $170 billion that AIG received in government bailout funds, $105 billion went to pay other banks, including many foreign banks. Many of the U.S. banks were already receiving other government bailout money as is. As for the foreign banks, why is the U.S. bailing them out? Adding insult to injury, AIG is also using its bailout money to also pay executive bonuses. It claims that it is legally obligated to do so. Personally, I would like to see those contracts that state government money must be used to pay these bonuses. I think this problem could easily be solved if the people running AIG spent some time with Bernie Madoff in his new home.

Since the ordinary rules of basic economics are being ignored everywhere else, why should they apply to oil production. At its meeting on Sunday, OPEC did not cut production quotas again, but instead said it would aim to enforce the already existing cuts. In the last several months OPEC has announced a 4.2 billion reduction in quotas and it is estimated there has been 80% compliance. They are now trying to get the extra 20% or 800,000 barrels a day. Oil production is being cut elsewhere as well, including the U.S., and this is happening because it simply isn't profitable to produce oil under $40 a barrel in many places. And no amount of wishing, hoping and jawboning is going to make this happen. The rules of economics always win in the end. Someone should tell Ben Bernanke.

The New York Investing meetup is having its second class in Technical Analysis on Tuesday. If you are in the New York area, you should be attending (space is limited and by invitation only to members of the group, if you didn't get an invitation email me through the website).

NEXT: When Bad News is Good News and Vice-a-Versa

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

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.

Analysis of Tuesday's Market Action

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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Stocks had a spectacular rally yesterday, with the Dow being up 5.8%, the S&P 500 6.4% and the Nasdaq and Russell 2000 7.1%. Many individual stocks did much better. Unfortunately the rally was lead by insolvent financials (Citi up 38% and Bank of America up 28%). Nothing has really changed to fix their problems and make them worth something. Many beaten down commodity stocks posted double digit gains as well and unlike financials these have real long term value. Inflation hedges, gold and silver declined while stocks went up and oil showed weakness in the afternoon. While the charts indicate a stock rally should be taking place right around this point, a test of the lows (with a lower low by no means out of the question) is likely again within about two weeks or so and after that a longer lasting rally is possible.

This rally will only be a Bear Market rally. Buy and hold for stocks is dead for the moment. This is not a bad thing however. It just requires a different investing mindset. Ignore the media pundits that continually point out that it's only a Bear Market rally as if somehow the money you make from it doesn't count. Bear Market rallies can provide you with the biggest profits in the shortest period of time - what more could an investor want? The biggest monthly rallies of all time in U.S. stocks were in fact in the 1930s during the Great Depression. The Dow was up 40% in April 1933 (it best month ever) and 35% in August 1932.

As we mentioned yesterday, a 'leaked' memo from Citigroup CEO Pandit set off the rally. This memo was reported to have said the Citi was 'profitable' for the first two months of the year. This seems to have been based on Citi having high revenue numbers (sales) in January and February - just as it did in every quarter where it had massive losses because of all the write downs it had to take. Just as changes in demand mean nothing unless you know changes in supply, revenues mean nothing unless you know expenses. It is amazing that traders fall for this blatant manipulation, but it works like a charm every time, which is why it continues.

The demand without supply argument has been the prevalent press coverage for the oil market for some time now. Oil dropped yesterday afternoon because the U.S. Energy Department cut its demand for global oil use by 1.4 million barrels a day for 2009 (rumors preceded the actual announcement). This has led to a lot more press today about falling demand for oil and how bearish this is. Traders sold oil down on this 'bad' news. Assuming that this agency has the slightest idea of what it is doing (I am not vouching for that), this was actually very bullish news. How can that be? Sometimes in the very same articles, which stated how negative the demand situation is, you could find that OPEC has cut production quotas by 4.2 million barrels a day (many discount this number to something lower). Let's see, demand is falling by 1.4 million barrels and supply is falling by a much larger 4.2 million barrels and the conclusion is that the price will go down. Did any of the financial reporters writing these articles pass Intro Economics? Doesn't look like it.

If you do have a longer term perspective, you will be better off buying commodity stocks. Since governments can't 'print' huge amounts of excess money without debasing their currency (another elementary idea from Intro Economics), lots of price inflation is inevitable and the value of tangible assets will be rising. Nice rallies took place in non-precious metal stocks yesterday, such as PCU, ZINC, AA and to a lesser extent FCX (as disclosure, I have held FCX for a couple of months now and bought some AA on Monday). Steel companies such as X also did spectacularly well. These are all strongly influenced by what is taking place in China and its desire to accumulate commodities for future use, so keep that in mind. The current economic situation is more than a bit iffy there, with bad trade numbers being released this morning.

While inflation hedges gold and silver weren't doing well yesterday, a report was released indicating confidence in U.S. sovereign debt has been deteriorating for the last year. Credit default swaps (CDSs are insurance for bonds) for U.S. treasuries are now being priced at seven times higher than they were twelve months ago. During the same period, CDSs for investment grade companies haven't even doubled. On the other hand, CDS rates for leading U.S. banks and brokers hit a record high this Monday. The big money players have little confidence in the U.S. financial system and are starting to question the viability of U.S. debt itself ... but don't worry, the U.S. government can always print more money to deal with the problem.

NEXT: How Media Manipulates Investors to do the Wrong Thing

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

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.

The Slippery Slope of Media Oil Coverage

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.

Our Video Related to this Blog:

Most investors have trouble making money in the market because they pay too much attention to the mass media. The financial press is mostly a gigantic PR outlet for Wall Street and whatever bill of goods it is trying to sell the public at the moment. Wall Streeters are of course usually doing just the opposite of the what the media is telling you to do with your investments. This is how they make their money. While Wall Street can mislead through the press, hiding its true intentions is difficult in the charts, which is why everyone should understand at least basic technical analysis.

I am looking closely at oil at the moment. If you relied on the press you wouldn't be paying any attention at all. I have read all sorts of arguments lately about why oil can't go up this year. These include such fantastic claims as a new political stability in Iraq, Iran and Nigeria (yeahh, that can happen), although they usually center around a claim that oil can't rally until the economy improves. This argument in turn relies on the basic economic principle that prices don't rise if demand is falling (certainly happening because of the crashing global economy) and supply stays the same. There is somewhat less than a zero chance that supply will stay the same however. When oil prices drop, production gets cut practically everywhere. OPEC's announced plans for another round of major cuts at its March meeting are just the tip of the iceberg. My sources in Texas tell me oil production is being shut down all over the state. I read the other day, that the tar sands in Alberta need oil to sell in the low 40's to break even. How long will production continue if oil falls and stays below that price? In fact, much of the oil that came online in the last few years is expensive oil that will no longer be produced if oil prices remain low. Given this set of circumstances, oil supply could easily fall below demand and the price of oil would then rise, not go down as all the 'pundits' claim.

The press is also giving a lot of coverage of the Stimulus Plan and whether or not it will be passed. Passage is presumed to be good for oil because the stimulus plan will revive the economy. It will certainly have some positive impact, since it is difficult for a government spending program not to (the TARP is one of those rare exceptions). The media is wasting a lot of ink on whether or not the Stimulus Plan will be passed. This is another absurdity. There is zero chance that it won't be. The vote of the typical member of the U.S. Congress is more available for sale than a crack-addicted street whore. Sure the price is more expensive and usually has to be paid in taxpayer funded giveaways, but no one in Washington cares about that.

Investors should keep in mind that by the time some change in the market is getting a lot of press coverage, it is usually well advanced. When the average person starts to be concerned, Wall Streeters have long ago taken their positions and are probably getting ready to close them out (the old 'buy on the rumor and sell on the news' saw that has been around the Street forever). Markets also don't go straight down or up forever either. Even if a long-term trend is well in place, significant reversals are likely along the way. You can make a lot of money in those reversals, but not if you pay attention to the mainstream media.

NEXT: It's Amateur Night at the U.S. Treasury

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

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.

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.

Our Video Related to this Blog:

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
http://investing.meetup.com/21

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.