Random Thoughts: Recent Trading/Market Activity

Hey, I was out of town for a few days — did I miss anything?

As I plow through my key data points, charts, and valuations, a few items are calling out for clarity. Here is what I am thinking about as I try to contextualize the past 10 days trading action:

• This entire crisis traces itself back in large part to then FOMC chair Alan Greenspan not allowing markets and the economy to flush themselves clean after the dot com collapse. It seems that nearly every Fed/Government policy action has been a response to the problems that error led to.

• European bourses down from 2011 peaks: Greece -43.9%, Italy -34.6%, Germany -25.6%.

• XLF (Financial Select Sector SPDR) has gone nowhere for 18 months. From over $17 to now about ~$12, its given up -29.2% from XLF’s 2011 peak. Perhaps all the bailouts did was temporarily interrupt their reverting to a smaller, more appropriate portion of the economy.

• The S&P500 may stabilize around current levels of 1,120-25. If and when that gets violated, the next logical area to test will be near 1,030 — another 10% down from here.

• Is there any political appetite for QE3 ? There is internal Fed opposition to more intervention. With Gold coming up on $2000, and inflation rising in China, its difficult to see much of a political room for the Fed to manuever here.

• There is a fine line separating savvy contrary thought and a reckless fight with markets. Remember, the crowd is what drives the price action, and you want to ride them until they turn into an unthinking mob.

• The Volatility Index (VIX) at 49 is fairly high. That’s above the Flash Crash levels of 41, but below the 2008 peak of ~80.

• There is a parade of talking heads on TV saying soothing, calming things. This can lend itself to a temporary respite from market madness, but the key word is temporary.

• Are US Banks adequately capitalized? The assumption is yes, but FASB 157 (“historical cost accounting”) makes me wonder about BAC and C.

• The % of issues on the NYSE above their 200 day moving average is now ~10%. Under 20% is where I put together a wish list, and 15% is where I dip a toe in the water. However, October 2008 saw a 2.13% level leading to a bounce and rollover; March 2009 at 3.61% saw a lasting rally.

Beware the margin clerks! Forced liquidations amongst traders, retail investors and of course leveraged hedge funds will be part of the action following this sell off.

• Amongst the few remaining Housing bulls, the last glimmers of hope for a Housing rebound have likely been dashed.

• It is the job of the investor to spot opportunity and manage risk. In this environment, which do you think they will be emphasizing?

Today’s market action is in large part a reaction to the wildly oversold condition. The assumption is this will be a bounce for days or weeks, than we will see a resumption of the selling until we make a sustainable low.

More later . . .

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