I am going to stick my neck out and say we are bottoming these days.
Why? Here goes.
In Bill Cara's commentary today, he opines about the [rationale for the
current market crash] (not the one last week, but this week).
> Why the panic bail-outs? The answer lies in the \$55 trillion dollar
> Credit Default Swap market that is unraveling day to day. Banks and
> central banks are totally focused on the breaks to the credit ring
> when up to \$400 billion of Lehman Brothers CDS obligations come due
> in the next week, with nobody at the teller window to pay up. Lehman
> Brothers is, as you know, bankrupt.
What this means is that unspecified banks holding the Lehman CDS
derivatives will get nothing, and then they will be unable to meet
their obligations to other banks. At stake are the Money Market Funds
on deposit in these banks. The entire system could collapse, so banks
do not want to be in the position of lending to one another. The
credit market has failed.
Bill suggests that we look at the 3 biggest banks in the world (total
over 90% of CDS market) for the first signs of when the market will tank
further. Because, well... if they can't pull through this mess, we are
So here's where my own analysis comes in. Besides Bill's rationale, we
know the current crisis is caused by the collapse of the financial
market. So I've been looking at the financial heavyweights in any case.
Enough talk, let's look at the market today. After the failed attempt of
a rally earlier this week, the market is widely expected to continue
spiral down. It has. And the media is certainly not short of fueling the
panic. See: Worries over economy spread; global markets sink and
Economic Fears Reignite Market Slump. However, what everyone knows
isn't worth knowing.
The only information traders should listen to though, is the price data.
[caption id="attachment_394" align="aligncenter" width="500"
caption="BAC, C, JPM, and S&P 500"][/caption]
As I was saying, based on yesterday's end-of-day move, the market is
expected to tank today, at least this morning. If we focus on the 3
banks, we can see they have broken yesterday's end-of-day low and are
testing the Monday lows. However, this is the key, their 15 min volume
on today's low is below yesterday's last 15 min when the prices dived.
All of their prices are testing their lows on lower volumes!
In other words, I believe the selling is drying up.
Does this mean we'll be shooting up from here? Perhaps. But this is a
very good sign. I would wait until the next significant daily move
(either up or down) and watch the quality of the action before making
any monetary committment in this crazy market.