Thursday, August 11, 2011

The mother of all dead cat bounces?

Sometimes, I don't like being right.
When I told you to "hang on tight, it will be a bumpy ride," I had no idea how high some of those bumps might be. Let's just hope yesterday isn't just the mother of all dead cat bounces.
The cat went *THUD* as the market gave away all of Tuesday's gains and then some. WXYZ reports.

Reuters has the details.

The Dow Jones industrial average .DJI ended down 519.83 points, or 4.62 percent, at 10,719.94. The Standard & Poor's 500 Index .SPX lost 51.77 points, or 4.42 percent, at 1,120.76. The Nasdaq Composite Index .IXIC fell 101.47 points, or 4.09 percent, at 2,381.05.

Trading was once again marked by sharp moves on massive volume. For a fifth straight day, the Dow traded in a range of more than 400 points.

The broader S&P 500 is down more than 15 percent from its 2011 closing high set on April 29.

The losses came against the backdrop of worries about weak U.S. economic data, the downgrade of U.S. debt, and the inability of lawmakers to address growing worries that another recession is on the way.
Recent selling has come despite attempts by politicians and central banks on both sides of the Atlantic to prevent or contain debt crises.

The snap back following the Fed's statement was short lived as investors saw the message as double edged. The Fed signaled it was willing to keep the U.S. economy afloat, but also acknowledged just how much trouble the world's largest economy
was in.
Wall Street's favorite fear gauge, the CBOE Volatility index .VIX, jumped 22.6 percent on Wednesday. It was the third session in the last five the index has jumped at least 20 percent.
Lovely. However, New Deal Democrat (NDD) at The Bonddad Blog found perverse reason for optimism.
Both the King of All Doomers and the Pied Piper of Doom have triumphalist pieces up this morning.

If their past performance is any guide, this means that the bottom of the stock market correction was yesterday afternoon after the Fed announcement.

This has been a public service message. I now return you to regular progammed blogging.
NDD didn't link, but I suspected he was referring to Mish Shedlock and Tyler Durden at Zero Hedge. I checked and found one from Mish and one from Tyler that fit the bill. I'll take those as signs of guessing correctly.

NDD returned to that post at the end of the trading day.
UPDATE: 30 minutes after the market close. Yes, I was being sarcastic, but on the other hand, even though we had a bad day today, yesterday's intraday low was not breached. It is still the bottom.
If NDD is right, it's not a dead cat bouncing as it falls down a cliff, it's a dead cat bouncing along the bottom. Based on this article from Reuters about futures, it looks like NDD is right--so far.
U.S. stock futures rose 1.5 percent on Thursday after a sharp drop in the cash index overnight, limiting Asian share losses, though focus will shift quickly to how European markets hold up to a sovereign debt crisis that has spread to its banking system.
That's one elastic dead cat.

Of course, this wouldn't be a complete economic report from me if I didn't mention commodities, especially oil.
Commodities were a mixed bag, with copper prices jumping, oil slipping while precious metals slid as equities staged a comeback.

Spot gold prices were down 0.7 percent to $1,781.89 an ounce after earlier hitting an all-time high of $1,813.79 . The undisputed safe haven has risen 11 percent so far this month and is up 27 percent in 2011.

Three-month copper on the London Metal Exchange rose 3.1 percent to $8,865 a tonne, after losing 1.6 percent in the last session.

Oil futures fell, with U.S. crude for September delivery down 0.3 percent to $82.62 a barrel, though well off Tuesday's intraday low of $75.71.
From a business as usual perspective, Copper moving up is a sign that traders think the economy will expand. Oil moving down while stocks go up is another good sign, as that suggests that high energy prices will not get in the way of economic growth. Of course, these aren't normal times, as the near-record highs for gold indicate.

We'll find out if NDD and I are right tomorrow at the close of the U.S. trading day. In the meantime, enjoy your Satan Sandwich!


  1. I say sell the whole portfolio, vacation extravagantly, and drink beer when the Apocalypse comes in 2012. This whole market think is just a bullpen warm up for real unpleasantness of the cosmic variety.

  2. I'll repeat what I wrote in my Rapture! post.

    "No supernatural causes will be needed to bring about the collapse of civilization; the interaction of human behavior with limited resources can do that all by themselves. That end will be completely natural, not supernatural."