From Buying Panic to Selling Panic
Monday, September 29th, 2008It appears that writing this weekly update after the weekend is becoming more and more appropriate. In recent weeks the US financial crisis has become so bad that weekend meetings of federal government officials are becoming the norm. Then on Mondays we see the market reactions to those events.
The news is definitely not good as I write this update on Monday afternoon. The rescue bill to sink $700 billion into failing US financial institutions is not being passed by the folks who have the power to endorse it. The drama continues.
As I’ve watched the business television channels from the opening this morning I’ve seen the Dow drop as much as 650 points and the S&P/TSX Composite Index sink 900 points.
For the week (last week) the S&P/TSX Composite Index had already fallen -6.1%. The biggest losses were in INFORMATION TECHNOLOGY (Research in Motion drives that index because of its weight in the subindex), down -14.4%; but all other sectors fell as well. MATERIALS were off -8.2%, INDUSTRIALS -7.9% and ENERGY down -6.2%.
Our end point in the chart above is now at 15%… not a place to be investing unless you’re an especially good bottom-picker.
Short selling continues to be tempting, especially for those who are good at it. You can sell stocks and buy them back cheaper later on, buy put options, or buy bear ETFs, which double your investment profits on the downside.
The lingering fear re: shorting, at least from my perspective, is that if a US bail-out plan is passed by the US government today, tomorrow or the next day, we’ll see another buying panic and anyone selling short (especially with leverage) will be wiped out.
Some of us, who have applied the guidelines of relative trend analysis™ (RTA), the technique we’ve developed and promote here, can glibly say that we sold most or all of our stocks back in June and July… before the worst happened. That’s good, but somehow not all that satisfying. You can’t make investment profits while sitting on a stack of cash. The only good thing is that our money market funds and straight-forward cash in our accounts are helping to provide liquidity to the system, if only in a modest way.
I’m going to leave it at that for now, and likely provide a mid-week update given these dynamic times.