Risk Value

Nothing quite like the break occurring over the last two weeks in the DJIA, SP500, and NQ100, as well as numerous other markets not as closely covered by this site. Real damage has been done to investors, traders, and to the underlying economy. Blame is contagious now in this political season as second guessing about allowing certain strategies such as letting Lehman fail, has infected all those who would classify anything but up unacceptable. Like corn farmers complaining about falling prices, there is a simple idiot test. If you think speculators and hedge funds are responsible for the current crash, you're an idiot. Up, like down, is part of the
moving target called value, and risk is its cousin. Seasoned traders get confused about the relationship of risk value and end up making incorrect decisions about opportunity and danger. When people are allowed to make choices about value, buying or selling, you can be either right or wrong. And when diminishing values create a race to capture remaining values, thing can get cheap quickly, as we have seen.

There are no guarantees about choices which contain risk. But there are no real opportunities without it. When risk is measured and quantified correctly and used in adaptive programs and not in supporting mindless long position in some portfolio by the endless ranks of Wall Street Ivy leaguers concerned with pathetic standard deviation measures, it works, and is able to withstand the pummelling of a crash.

We are witnessing the unwinding of static traditional and exotic portfolio positions competing with the low bid participation created by a squeeze on banks. Raising cash is always harder when others are racing you to the buyer. The de-regulation, less government, and lower tax, self serving neo-conservatives, are experiencing a surge of social medicine they never imagined. Maybe we misunderstood them when they claimed it all for free markets. Maybe they said flee markets.

There is a balance between allowing the markets to discover value and appropriate oversight crafted to regulate tranparency without any grey areas. The worst of the under sight is over, the best of the markets is yet to come.

Where The Bear Stops?

Markets with an early plunge today as the Great Unwind continues. The relative ease of the generational gains which started in August of 1982 have met a few road blocks, the dot com break and 911. This stock market is experiencing what every commodity trader learns to trade around, the occasional death dive. The breaks usually fall until they reach the 50% retracement level of the entire bull or bear run, which in this case can be measured over 26 years. The crash of October 1987 reached 1616 or a 41% decline from 2746. The great bull run of the last century saw its last leg,( the first leg started in the 30's), begin in August of 1982 with a low 769. The rally reached a high 14198 in October of 2007. A 50% retracement lands at 7484. Today's inter day low as of this post is 7882. Close enough?

The Bottom Indicator

The NQ100 is battling to make a stand while the SP500 and DJIA continue to drag along the bottom of the recent declines since they contain the bulk of stocks being liquidated. Lending is still sluggish as risk attitudes have now changed for the foreseeable future. This change goes hand and hand with the potential for a worldwide recession and is keeping a lid on much if any upside so far. The greatest marginal advantage will turn to the buy side once the liquidation slows and prices are perceived to be cheap enough to make a long term play. NQ100 will be the indicator that the bottom has been achieved.

Global Action

DJIA is down over 200 points as of this post after a morning of whip saw action due to a global rate cut and recession worries. Probing for value with rapid deceleration and plunging action has managers staying busy with redemptions and screen jaw. These are fast markets for anyone who has ever traded on any floor or been a screen jockey all their lives. Nibbling continues in these cheaper values areas but no one is really sure if things are cheap. NQ100 will make a bottom first and lead the markets higher, but that has not happened yet.

Looking Clever

Market players are trying to figure how to drive trades into clever positions given all the incentives the injections of liquidity are providing. Once traders figure out what they can lean on strategically, they will pounce on a consensus trade and do it until it is over done. Never has there been so much cash plowed into stabilizing world assets and it is hard to believe there are not selective prizes being totally ignored by fear. The old trading floor adage of buying the first thing that makes new session highs worked yesterday for big stocks like GE which made early session lows and may be the signal of larger pricing being executed. Having said that, markets will have to dodge liquidation waves caused by fund redemption action.

Markets Look Ahead

Week is beginning under pressure as the DJIA is defending 10000 with various financial fires burning around the globe. Now that the $700 billion bailout has been passed, banks are still reluctant to lend, thus keeping a tight bias as they hoard cash. This will force the Fed to lower rates as they try to drive the cost of borrowing lower, but the only impact may be to increase the profit margin on new lending standards.

Warren Buffett continues selective purchases of preferred stock as he takes advantage of falling share prices. Looking to this guy as some type of economic saviour is like believing your insurance agent is really your friend and doing you a favor buy accepting your premiums. Warren does not have a clue.

Presidential politics will become incredibly ugly in the final days as Democrats launch retaliatory strikes against Republicans who are now unleashing the negative machine as they try to make character an issue. Slinging mud and a slumping economy will not please the enraged voter.

Bailout Bill Passed

House has passed the bailout bill with some anxious choppy trade and idiot news talk surrounding it. Now markets can focus on more important data, weekend baseball playoff games and Sunday NFL football.

House Watch

Indexes attempting to rally after avoiding an unemployment number surprise. Now the markets
will have to wait once again for early trade on Sunday US to see how the House bailout bill fared.
Passage provides no guarantees of higher markets but may loosen the tight credit grip between banks.

The Sell Vote

Stock indexes continue to reflect liquidation of hedge funds, mutual funds, and individual stock positions as the market seems unsure of all that has been done thus far to settle world financial markets. The fixes for Bear Stearns and Lehman and now the possible bailout package from Congress are beginning to be viewed as a bailing out of the previous bailout, with no end in sight. Cashing up and or out is a vote of no confidence in the markets. The question of whether or not the indexes are exhausting or moving to a lower, much lower trading range will be answered over the next few sessions.

Today's Action

Action with less energy today as the markets look to a Senate vote tonight and a possible House redo on Friday. Warren Buffett is buying stock here he claims, with himself providing cable business news interviews explaining his reasoning. He like all traders will always qualify any view of the market by paying homage to uncertainty. It is hard to get a handle on the market's moves since every effort to stabilize the monster has ultimately failed. Each trader is hoping for passage of the bailout bill but none will place a large bet that it will do the trick. News of continued hedge fund bombs poor out as many of them seem to have twisted themselves into inescapable strategies.

Despite yesterday's rally, markets remain quite oversold. With the Senate and House votes coming up along with Friday's unemployment data, the action shall spin again.