Monday, October 27, 2008

Market Mondays

I'm back. Let's start off the week with a look at the SPYs.

There are several ways to look at this chart. The first is as a triangle. While I don't disagree with this analysis I have thought that a broader view is needed to take the high volatility into account. As a result, I thought this was more of a complex bottom (meaning there really wasn't a recognizable trading pattern forming) then anything else. I thought there were two important price levels: 90 and a bit below 84. In addition, I thought 90 was far more important because there was a lot more action around that level.

The reason for all of this is my thesis was we were in a bottoming stage. The market has dropped for about a year. We're at levels from 2002-2003. In other words, it was time to start looking for a point to put money back into the market.

That is looking less and less likely. First the chart is still extremely bearish. Consider the following points:

-- All the SMAs are moving lower

-- The shorter SMAs are below the longer SMAs

-- Prices are below all the SMAs

-- Prices are near the low point of the trading range

Then we have this news today:

Asian markets swooned for the second straight trading day as fearful investors pulled out of the region's equity and currency markets, leading to a 12.7% drop in Hong Kong and a 6.4% drop in Tokyo.


Markets in Shanghai, the Philippines and Taiwan also fell, while Mumbai and Bangkok were down intraday.

In Europe, the pan-European Dow Jones Stoxx 600 index fell 5% to 188.82, a level not seen since early 2003. The U.S. looked set for a dismal opening: The S&P 500 index futures contract was trading 4.3% lower at 828.70.

Then there is this look at the labor market:

A rash of new job data show the labor market is now the worst it's been since the two prior recessions in 2001 and the early 1990s. One of the starkest indicators is that the number of people who have been unemployed for 27 weeks or more reached two million in September. That's 21% of the total unemployed, and approaching the prior peaks of about 23% in 2003 and 1992. The prospects of these job seekers grow dimmer as layoffs spread beyond the financial, home-building and auto industries.

Also in September, companies saw 2,269 mass layoffs -- in which at least 50 people are let go at once -- more than at any time since September 2001. And while the unemployment rate is at a five-year high at 6.1%, a broader measure of weakness that includes people who have stopped looking for work or whose hours have been cut to part-time is 11% -- the highest in 15 years.

What worries many economists is that labor markets usually reach their weakest point after a recession has ended. During the so-called "jobless recovery" following the 2001 recession, jobs continued to be shed after it was officially declared over. But the current weakness comes as the country heads into a recession that is now forecast to be deeper and longer than previously thought.

"No one thinks we are anywhere near the bottom of this, and we're already rivaling these other recessions," says Heidi Shierholz, an economist at the Economic Policy Institute, a left-leaning think tank in Washington.

Bottom line: I'm pretty sure I was wrong about this being a bottom.