Market in Capitulation? - Mercedes-Benz Forum

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post #1 of 45 (permalink) Old 09-17-2008, 03:28 PM Thread Starter
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Market in Capitulation?

This is what a friend just sent me...

A quick update.

Monday the stock market fell 400 points.

Yesterday the market rose 140 points.

Today it falls 450 points.

The market is currently in a "capitulation" phase. That is, selling is happening without distinction of the good vs. the bad. When this happens, the market moves very quickly, as we have seen. It will continue to happen until all enthusiasm for stocks has been wiped out.

Look closely at this graph below of the stock market over the past ten years. Look at the upper graph, which is an indicator based upon market action. When this indicator falls to below 30, it tends to mark a market bottom. It hit 30 today.

Accordingly, I expect the market to reach a bottom very soon. It could happen in the next few days or the market may bounce around a bit and finish off in the next few weeks. In either case, I expect to see a bottom within a month.

Note also that once a bottom is reached, the market will rebound very strongly. The rebound may or may not last (as happened several times in the last bear market). But, it will represent an excellent profit opportunity, which we will be watching for.

Markets will change direction in advance of economic news. They start to decline prior to a recession and they start to rise prior to the end of the recession. Accordingly, if we are in a recession or entering one, the markets may rise in spite of that news. Likewise, the current financial crisis will not be solved before the markets decide to rise. They will inexpicably rise even when there are huge problems.

I do not expect that the financial crisis woes will be solved within the next month! However, the markets will probably hit bottom and put in a strong rally anyhow. Why? There is not really a rational reason. Markets move from one extreme to the other and once they have gone too far one way, they will reverse. It is more psychological and emotional than logical.

The Dow closed today just over 10,600. As I have said several times, I expect the bottom to be in the 10,000 to 10,250 range. I base this primarily upon the fact that this is the level that supported the Dow several times in 2004 and 2005. Markets tend to hold prior support levels. Hopefully, it will this time also.
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Don't believe everything you think
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post #2 of 45 (permalink) Old 09-17-2008, 03:36 PM
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A more scientific method
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post #3 of 45 (permalink) Old 09-17-2008, 03:42 PM Thread Starter
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Originally Posted by Teutone View Post
A more scientific method
You go girl!

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post #4 of 45 (permalink) Old 09-17-2008, 03:50 PM
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post #5 of 45 (permalink) Old 09-17-2008, 03:53 PM
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That looks alot GAY to me.
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post #6 of 45 (permalink) Old 09-17-2008, 05:39 PM
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Of course on July 3 he called the bottom and that we were at capitulation then.

"...this week has seen continued selling in the markets and I wanted to give you a quick reply before the holiday. We have seen indiscriminate selling this week, we have seen new lows spike to over 600 on the New York Stock Exchange and we saw high volume. All of these are signs of capitulation. Capitulation is a sign of a market bottom, where "everyone" is throwing in the towel.

At this point, the markets are at extreme "over-sold" levels. Extremes that also mark market bottoms. Accordingly, the odds are very high that the stock market will rally from here.
He further states that if there is a crash it would be "unfounded". Well, even back in the dark ages of July, 60 days ago we knew that banks were failing and the credit market was on the edge. Unfounded is not the word I would use.

He has some good things to say but his CYA factor is high and the broad spectrum doesn't really pin him to a prognostication, simply a menu of some of the possibilities.


Being smart is knowing the difference, in a sticky situation between a well delivered anecdote and a well delivered antidote - bear.
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post #7 of 45 (permalink) Old 09-17-2008, 06:54 PM
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With friend like him, who needs enemies? Hope you are not shorting the market under his advisements.

Then again, I hope you do.

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post #8 of 45 (permalink) Old 09-17-2008, 09:48 PM
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Well, based on the responses and reaction here and lack thereof, the fact the clkman is starting new threads again and the exhaustion I sense here even to the extent political threads nary get a glance, it is highly plausible.
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post #9 of 45 (permalink) Old 09-17-2008, 10:08 PM
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All of this is quite impossible Jay. For the market to hit (yet another) bottom, it would have to have declined, and anyone who's been paying attention to you (fortunately or otherwise) knows this to be quite impossible. For the Good Lord has given us a Republican President and Satan has not yet achieved anything close to a veto-proof majority in the House and Senate. So do be a good Christian and ignore those emails which are most surely sent from the Inferno itself. Everything's just fine Jay. You were right all along.

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post #10 of 45 (permalink) Old 09-18-2008, 07:34 PM Thread Starter
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Stocks Soar Most in Six Years... Could it be?

U.S. Stocks Rally Most in Six Years on Plan to Shore Up Banks

Sept. 18 (Bloomberg) -- U.S. stocks rallied the most in six years on prospects the government will formulate a ``permanent'' plan to shore up financial markets, while regulators and pension funds took steps to curb bets against banks and brokerages.

Traders erupted into cheers on the floor of the New York Stock Exchange as the Dow Jones Industrial Average jumped 617 points from its low of the day after Senator Charles Schumer proposed a new agency to pump capital into financial companies. The Standard & Poor's 500 Index climbed 4.3 percent as 68 companies in the gauge rose more than 10 percent.

Wachovia Corp. soared 59 percent, Citigroup Inc. added 19 percent and Bank of America Corp. jumped 12 percent, sending the KBW Bank Index to its biggest gain since July. Morgan Stanley erased a 46 percent tumble and Goldman Sachs Group Inc. recovered most of a 25 percent slide after the nation's three largest pension funds stopped loaning shares of the brokerages to investors betting on their declines.

``Any actions regulators or other entities or players take to try to slow down the bear raids will be received positively,'' said David Katz, chief investment officer of Matrix Asset Advisors in New York, which manages $1.4 billion. ``There's no reason a Goldman Sachs or a Morgan Stanley should be forced to sell themselves in a shotgun wedding if they've got economic models that work, and they do.''

The S&P 500 advanced 50.12 points to 1,206.51, recovering most of yesterday's 4.7 percent tumble. The Dow surged 410.03, or 3.9 percent, to 11,019.69. Both the S&P 500 and Dow posted their biggest percentage gains since October 2002. The Nasdaq Composite Index jumped 100.25, or 4.8 percent, to 2,199.1. Seven stocks climbed for each that fell on the NYSE, its broadest rally since April.

`Elevated Pressures'

The S&P 500, which fell 4.7 percent twice this week, rebounded from its lowest level since May 2005. Stocks opened higher after the Federal Reserve said it authorized global central banks to auction funds ``to address the continued elevated pressures in U.S. dollar short-term funding markets.''

The benchmark index for U.S. equities then swung between gains and losses as concern over the health of Morgan Stanley and Goldman dragged on financial shares, before Schumer's proposal spurred a rally in the last hour of trading.

Russell 2000 Rally

The Russell 2000 Index of small-company stocks surged 7 percent, the most since two days after the stock market crash in October 1987. Financial shares in the measure jumped 12 percent, led by a 88 percent gain in Newcastle Investment Corp., a real- estate investment trust.

About $3.6 trillion of market value was erased from global stocks this week before today, triggered by the bankruptcy filing by Lehman Brothers Holdings Inc., once the fourth-largest U.S. securities firm. Today's rally restored more than $600 billion in value to U.S. stocks, according to Bloomberg data.

Wachovia, the fourth-largest U.S. bank, rallied $5.38 to $14.50, its steepest advance since at least 1983. Citigroup, the biggest, jumped $2.62 to $16.65, its largest gain in 10 years. Bank of America, the No. 2, added $3.38 to $30.58. MGIC Investment Corp., the biggest U.S. mortgage insurer, rose 75 percent for its best rally since July.

The KBW Bank Index added 14 percent as 22 of its 24 companies advanced. The S&P 500 Financials Index climbed 12 percent, with 79 of its 86 companies rising.

Schumer urged forming an agency to inject funds into financial companies in exchange for equity stakes and pledges to rewrite mortgages and make them more affordable. His remarks indicate momentum is building for some wider plan after the Fed and Treasury's takeovers of Fannie Mae, Freddie Mac and American International Group Inc. this month.

`Comprehensive Solution'

``The Federal Reserve and the Treasury are realizing that we need a more comprehensive solution,'' Schumer, a Democrat who chairs the congressional Joint Economic Committee, told reporters in Washington. ``I've been talking to them about it.''

Morgan Stanley rose 3.7 percent to $22.55, snapping a seven-day retreat, and Goldman Sachs slipped 5.7 percent to $108. They are the two remaining independent Wall Street brokerages after this week's bankruptcy of Lehman and takeover of Merrill Lynch & Co. Yesterday both fell the most ever on speculation rising financing costs will force them out of business.

Morgan Stanley and Goldman began erasing their declines after the California Public Employees' Retirement System and the New York State Common Retirement Fund joined the California State Teachers Retirement System in deciding to stop lending its shares of the two companies. The decisions curb the supply of shares available to short-sellers.

Short Sales

Morgan Stanley is down almost 45 percent in September. Chief Executive Officer John Mack, in a memo to employees yesterday, blamed short sellers for driving down the price of his company's shares. Morgan may sell a new stake to China Investment Corp., which owns a 9.9 percent position, and is in talks about a possible merger with Wachovia, a person familiar with the matter said.

The Securities and Exchange Commission's new rules force traders to borrow shares before selling them short and make it a fraud for investors to lie to their broker about locating stock to close positions. The SEC may also require hedge funds to disclose their short-sale positions and plans to subpoena the funds' communication records.

``Things have been pretty brutal the last few weeks, as bad as I've seen it 30 years in the business,'' said Phil Orlando, the New York-based chief equity market strategist at Federated Investors Inc., which manages $334 billion. ``Shorting had a lot to do with contributing to this near collapse in the market.''

In the U.K., the Financial Services Authority banned short sales of financial shares for the rest of the year after HBOS Plc, the country's biggest mortgage lender, lost 37 percent of its market value over three days. In a short sale, investors borrow stock and sell it. The sellers profit if the shares go down and they can repay the loan with cheaper stock.

Washington Mutual Speculation

Washington Mutual Inc., the largest U.S. thrift, rallied 98 cents, or 49 percent, to $2.99. JPMorgan Chase & Co., Citigroup, Bank of America and Wells Fargo & Co. may be interested in buying pieces of WaMu, said three people with knowledge of the discussions, who asked not to be identified because the talks are private.

The S&P 500 erased a drop of 2 percent led by asset management companies after Putnam Investments LLC closed a $12.3 billion money-market fund following a surge of investor withdrawals. Putnam Prime Money Market Fund will liquidate and return cash to investors.

`Breaking the Buck'

A money-market fund run by Reserve Management Corp. this week became the first in 14 years to expose investors to losses by ``breaking the buck'' after writing off investments in Lehman debt. Money-market funds strive to maintain a share price of $1 and are intended for capital preservation.

State Street Corp., the world's biggest money manager for institutions, fell 8.9 percent to $59, paring a drop of as much as 55 percent. Federated Investors Inc., the fourth-largest money-fund manager, fell 11 percent to $27.10 after earlier retreating as much as 44 percent. State Street and Federated issued statements saying that none of their money-market funds had fallen below $1 a share.

Kraft Foods Inc., the biggest U.S. foodmaker, jumped 3.3 percent to $33.74 after being named as the replacement for AIG in the Dow Jones Industrial Average. AIG, the biggest U.S. insurance company, was taken over by the government this week after mortgage-related losses led to credit-rating downgrades that drove the company to the brink of bankruptcy.

Times Rallies

New York Times Co. surged 12 percent to $15.25, its biggest gain since 1980, after reporting a smaller revenue decline for August than the previous two months.

Almost 2.45 billion shares traded on the NYSE, the most since March 20 and 77 percent higher than the three-month daily average.

U.S. stocks tumbled yesterday as bank lending seized up in the wake of the government's takeover of AIG, raising concern that more of the nation's biggest financial companies will fail.

The 26 percent drop in the S&P 500 since its October peak through yesterday erased half its gain from the five-year bull market that began in 2002.

The S&P 500 is poised to post its first yearly retreat since 2002 after global banks racked up $518 billion in credit losses and asset writedowns stemming from the first nationwide decline in home prices since the 1930s. Worldwide

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Last edited by Jayhawk; 09-18-2008 at 07:39 PM.
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