While
the market is looking better, there are still real worries related to
Europe. Robert Reich (former Sec of
Labor and currently a professor at the University of California at
Berkley) wrote in his blog that Behind
Europe's Debt Crisis Lurks Another Giant Bailout of Wall Street.
“A
Greek (or Irish or Spanish or Italian or Portuguese) default would have roughly
the same effect on our financial system
as the implosion of Lehman Brothers in 2008.- Financial chaos.
The
Street has lent only about $7 billion to Greece, as of the end of last year,
according to the Bank for International Settlements. That’s no big deal.
But
a default by Greece or any other of Europe’s debt-burdened nations could easily
pummel German and French banks, which have lent Greece (and the other wobbly
European countries) far more.
That’s
where Wall Street comes in. Big Wall Street banks have lent German and French
banks a bundle.
The
Street’s total exposure to the euro zone totals about $2.7 trillion. Its
exposure to to France and Germany accounts for nearly half the total.
And
it’s not just Wall Street’s loans to German and French banks that are
worrisome. Wall Street has also insured or bet on all sorts of derivatives
emanating from Europe – on energy, currency, interest rates, and foreign exchange swaps.
If a German or French bank goes down, the ripple effects are incalculable.” http://robertreich.org/post/11033625495#ixzz1ZuBr3jvC
Recession
is even more likely and the Federal Reserve statement by Chairman Bernanke was
pretty clear for Fed-speak: “"Recent indicators, including new claims for
unemployment insurance and surveys of hiring plans, point to the likelihood of
more sluggish job growth in the period ahead…the economy is "close to faltering,"
Even
so…the Stock market is moving up on the news on the hope that the recession
will be shallow or the hope there won’t be a recession. Conditions are bad now (unemployment, housing
prices, etc), so it is believed that a recession from these levels will have
less impact to the markets. It is hard
not to rush out and buy back into the market since it is going up now, but as I
noted yesterday…patience.
A
thought to keep us grounded (patient): here’s a comment from a trader whose
handle is “smoothshot” on a discussion-board I visit, Subject: dcb (dead cat
bounce)...“there's not a chance in the world we don't retest the lows again…Bulls
have the odds firmly stacked against them here. Bounce? ok but then it's back
to business.”
There
were reports on the web that we have seen a lot of short covering yesterday and
today.
The
Navigate the Stock Market analysis is HOLD today. The VIX indicator slipped back to negative but the Volume indicator
went neutral so we are flirting with a “Buy” signal and it could come as early tomorrow
depending on market action. It could
also turn negative again so I don’t want to guess market direction (and the
NTMS model) too much.
If
it does give a Buy signal, I’ll have a decision based on two alternatives: (1) I
follow the NTMS guidance strictly and move back into the market as soon as NTMS
says buy (2) wait for the S&P 500 to retest the recent 1099 low. While a test is likely; it is not guaranteed.
I sold on the 27 July sell signal at S&P
500 1301 and I am defensively positioned with only a small amount of my
portfolio invested in stocks. (Zero stocks in the 401k.) (See the page “How to Use the NTSM System” –
the link is on the right side of this page).
I went 50% long in the trading portfolio yesterday based on the
improvement in the NTSM model and Monday’s big down day.
