Prague Twin

Monday, May 22, 2006

Late Market Wrap-Up

I said I would do this on Friday, but, well, you know.

Last week was rough on US equities. It looked like the bloodletting from the end of the previous week had shored up on Monday and Tuesday, but Wednesday's higher than expected CPI data fueled fears that inflationary concerns would force the Fed to continue to raise interest rates. These fears resulted in a precipitous drop in equities on Wednesday.

On Thursday, stronger than expected initial jobless claims continued to fuel worries that the U.S. economy is indeed finally starting to show signs of softening. However, the high number of jobless claims has the inverse effect on the Fed rate decision than inflationary concerns. Higher unemployment means the Fed is more likely to pause in raising interest rates to help grow the economy. Having said that, the Fed says the inflationary concerns are primary, which means that they will probably continue to raise rates.

By the end of the week, we saw signs of nervousness. Very high volume indicates that people are making moves to hedge their bets and diversify their portfolios ahead of a possibly volatile correction.

In sum, the market has come to its senses. In my view this correction is overdue, which is why it could be quite damaging if it gains momentum. Commodity prices have pullled back, and the dollar finally broke it's two-month losing trend. The dollar is at about $1.27 to the Euro. The psychologically important $1.30 barrier was not broken, but the resistance treadline was. $1.2690 seems to be providing short-term resistance, but a correction all the back down to $1.24 is possible. In my view, this range between $1.26 and $1.30 should hold for some time.

There is nervousness and volatility that we have not seen in the markets in some time. Europe has opened lower today. Everyone agrees we are in the midst of a correction, but no one knows how much of a correction we will actually see. Nervousness, yes. Full-blown panic, not yet.

10 Comments:

  • I agree there isn't full-blown panic yet. How far off are we from that?

    By Blogger reality-based educator, at 12:30 PM  

  • All it would take is a 500 point one day drop. People would lose their s***.

    I'm hearing a lot of chatter today about big names investing in hedge funds.

    DJIA looks to open down 65 points. Everything in Europe is down but looks to have hit a temporary low.

    Opening bell right now, let's see what happens today.

    By Blogger Praguetwin, at 3:32 PM  

  • The real issues are global and the US are not doing a lot to help themselves.
    The Bush admin are behaving like fiscal spoiled brats, borrowing and spending without a care.
    The time will come, sooner rather than later, when more responsible economies will need to protect themselves.
    Obviously the major US corps are not relying on the country's economy, otherwise they would have forced a cap on gearing long ago.
    It is the people who will suffer when the shit hits the fan, as always.

    By Blogger Cartledge, at 5:45 PM  

  • I'm feeling smart because I sold a couple of stocks I owned a week before this happened.

    However, you never know...in the long run it might have been a mistake...

    By Blogger Elizabeth, at 9:58 PM  

  • Yes, I believe that the piper will come to call sooner rather than later. All the big boys are sufficiently diversified and they always are one step ahead. As you say, the people will suffer.

    Elizabeth, you are masterful. Were they big names with big percentage gains in 2006? You could buy them back now for a 10 percent discount, but I wouldn't recomend it.

    By Blogger Praguetwin, at 10:49 PM  

  • "Obviously the major US corps are not relying on the country's economy, otherwise they would have forced a cap on gearing long ago.
    It is the people who will suffer when the shit hits the fan, as always."

    Well said, cartledge.

    Maybe if the people suffer enough, they'll throw the bums who enable these kind of economic conditions out on their asses. Here's hoping, anyway.

    By Blogger reality-based educator, at 12:00 AM  

  • Nopers. We can't throw them out on their asses. If we do, the next thing you know, activist judges will permit same sex marriages. I ask you, will the world be safe for Democracy then?

    It is clear that the only answer is more tax cuts for the rich and the richer the person, the bigger the tax cut. If anyone doubts this course of action, well just remind them of 9.11 and accuse them of lack of patriotism.

    By Anonymous Tony Sokolow, at 4:48 AM  

  • As for me I am holding course and will reap the benefits of a small panic sell-off.

    By Anonymous Arch Stanton, at 3:50 PM  

  • I sold ExxonMobil and Fedex. They had had fairly large gains. Actually, the reason I sold them (other than that they had large gains) was because I am uneasy about what's going on with our oil supplies and gasoline...

    I would have made a lot more money if I'd had the guts to buy larger amounts when I was buying...

    By Blogger Elizabeth, at 4:05 PM  

  • Good move Elizabeth.

    Arch, how are you goint to do that exactly?

    By Blogger Praguetwin, at 7:27 AM  

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