Depression Watch Dec. 11 2008

Dow Close (Tues)      8,691.33    242.85 (-)     Volume
Dow Close (Wed)         8,761.42        70.09 (+)     Volume    332.32M
Dow Close (Thurs)       8,565.09        196.33 (-)     Volume    330.58M
Oil (Tues)                $42.40
Oil (Wed)                $43.88  
Oil (Thurs)                $47.98
S&P 500 (Tues)            888.67         21.03 (-) 
S&P 500 (Wed)             899.24        10.57 (+)
S&P 500 (Thurs)           873.59        25.65 (-)
VIX (Tues)                    58.91             0.42 (+)
VIX (Wed)                     55.73             3.18 (-)
VIX (Thuus)                  55.78          0.05 (+)

Identifying rallies or sell offs (anomalies in trends) can be very tricky. Option traders, often use volatility just for profit, without a specific desire for up or down. This means that sufficient such trades can effect the market - contrary to the trend. The next issue, which obviously extends from trends, is market momentum.  Market momentum (up and down trends) is slope (steepness) of trend line. The next issue is tops, bottoms and plateaus. Each could be presented as a peak, valley, or plateau. Peaks and valleys are obvious. Plateaus are very complex. Plateaus present themselves a flat markets (identified by a flat - horizontal - trend line). The problem with a plateau is they are directionless (neither up or down). For example, there are some economists call this week a bottom of the market, because it had some flatness. However, there is a lot more negative market news to come. This means that instead of a bottom, it's a plateau; it could move up signally an end to the recession; or  move down deepening the recession. The difficulty in identifying trends is choosing the right scope.

Treasury Track

12/10/2008
         
1 Month Bill     0.01%     -0.01
3 Month Bill     0.01%     -0.02
6 Month Bill     0.21%     -0.05
2 Year Note     0.85%     -0.01
5 Year Note     1.61%     0.00
10 Year Note     2.69%     0.02
30 Year Note     3.09%     0.05

12/11/2008

1 Month Bill      0.02%      0.01
3 Month Bill     0.02%     0.01
6 Month Bill     0.20%     -0.01
2 Year Note     0.82%     -0.03
5 Year Note     1.56%     -0.05
10 Year Note     2.63%     -0.06
30 Year Note     3.08%     -0.01

Supporting Quotes

[1]
1. What exactly is the VIX? --- In 1993, the Chicago Board Options Exchange® (CBOE®) introduced the CBOE Volatility Index®, VIX®, and it quickly became the benchmark for stock market volatility. It is widely followed and has been cited in hundreds of news articles in the Wall Street Journal, Barron's and other leading financial publications. Since volatility often signifies financial turmoil, VIX is often referred to as the "investor fear gauge". - [http://www.cboe.com/micro/vix/faq.aspx]


[2]
In a recent interview with Richard Russell, the author of “The Dow Theory Today”, Russell suggested that the January 2008 lows in the US equity markets was not a bear market bottom and that we remain in a bull market that started in the early 1980’s.  Further he thinks that we could accomplish new highs in the major indicies somewhere between 2008 and 2010.  He cites two reasons for this perspective, (a) the incredible amount of liquidity being injected into the world markets, and (b) the trillions of dollars parked in money market funds, sovereign wealth funds, and other non-equity investments.  - [http://www.joergercapital.com/ManagersBlog/ - May 2008]

[3]
Standard and Poor’s is definitely in the short and shallow recession camp.   They continue to see fourth quarter 2007 as the trough in S&P 500 opearting earnings and predict record S&P 500 operating earnings per share of $96 for 2008, yielding a current PE ratio in the 14-15 range.   Definitely reasonable by historic standards.   They have also released a $115 per share operating earnings forecast for 2009 – a whopping 20% gain over their 2008 forecast and a forward PE ratio of 12.   It seems clear that if the market were to accept these forecasts as reasonable, money flows into US equities would be substantial.   So, for the time being, earnings fundamentals and forecasts seem to support the bullish view. - [http://www.joergercapital.com/ManagersBlog/ - May 2008]

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