Here We Go- 8% Upside!

It's time to make a stand. Is it different this time? That is the question. As you know the Yields on U.S. Treasury bills fell the most in two decades on demand for the safest securities amid concern over a widening credit crunch.

Treasury Bill yields have fallen five straight days as money market funds dumped asset-backed commercial paper in favor of the shortest-maturity government debt. Three-month yields dropped the most since the stock market crash of 1987 and more than in the wake of the Sept. 11, 2001, terror attacks in the U.S, as funds shunned assets that may be linked to a weakening mortgage market.

But wait, this is a good thing not bad.

There are two defining moments from late last week - an incredible rush to safety, and a washout in terms of market breadth.

There are many ways to watch for extreme moments of risk-aversion. One sign of that came from Rydex mutual fund traders, as they were three times more likely to invest in a "safe" fund than a "risky" one. But in the bigger scheme of things, Rydex funds are small potatoes. The Treasury market is not.

And in that Treasury market, we saw a huge rush to one of the safest of all instruments - the three-month T-Bill. Over a two-day period, the yield on T-Bills dropped by more than 20% (near Thursday's nadir), which means that there was a big demand for those Bills. Like all credit, when demand is strong and supply is restricted, then prices rise and yields fall.

That two-day decline was one of the steepest in five decades. Using data from the Federal Reserve for secondary market rates on T-Bills, I could find only two other times since 1950 that yields dropped so much in such a short period. Those two times were February 24, 1958 and September 17, 2001. Both led to an imminent halt in selling pressure in equities (or very close to it in 2001), and the S&P 500 was about 8% higher a month later both times.

So history would suggest starting today we have an 8% run ahead of us. Not a systemic calamity ahead of us. This rush to safety.... is it a crystal ball into the future?.... Or the past? Think about it.

That rush to safety was accompanied by traders dumping shares at a record rate. NYSE volume set a record on Thursday, and the past two weeks have seen several days with volume nearly as high. Large share turnover in the midst of a decline is typically a mark of a bottoming market.

Going back to the 1960's, I looked for any time total NYSE volume was at least 50% above its one-year average for at least five out of the past ten sessions, AND the S&P 500 was at least 5% below it's highest point of the past year. Looking ahead three months, the S&P was positive 90% of the time (92 out of 102 days) with an average return of +7.6%.

There's that 8% figure again folks accident or not?

Much of that volume was traders wanting to get out of their shares, and selling at any price. By Thursday, a phenomenal 1,132 stocks had hit new 52-week lows, the second-most in history.

Expressed in terms of total stocks traded, that comes out to 33%. There have only been three times in the past 20 years that more than 30% of stocks hit a new low on the same day - 10/19/87, 8/23/90 and 8/31/98. Those were exceptional times to initiate intermediate-term long positions.

Also near a couple of those dates, we saw extraordinary one-day reversals on heavy volume, and brokers exploding out of one-year lows…just like Thursday. Fundamentally, there are many reasons to expect more bad news and possible selling pressure to come. And technically, the markets look quite weak. But looking at some of the intangibles, a good argument can be made that despite some likely short-term testing of Thursday’s low, that testing should succeed and result in a one- to three-month recovery.


``The market is totally, absolutely, completely in fear mode,'' said John Jansen, who sells Treasuries at CastleOak Securities LP in New York. ``People are afraid that lots and lots of mortgage paper and mortgage paper derivatives of all sorts is completely opaque and they can't price it.''

``I've never seen it like this before,'' said Jim Galluzzo, who began trading short-maturity Treasuries 20 years ago and now trades bills at RBS Greenwich Capital in Greenwich, Connecticut. ``Bills right now are trading like dot-coms.''

Investors fled even money market funds, considered among the safest instruments, on concern that the funds, which hold $2.5 trillion, have invested in risky collateralized debt obligations backed by subprime mortgage loans.

``We had clients asking to be pulled out of money market funds and wanting to get into Treasuries,'' said Henley Smith, fixed-income manager in New York at Castleton Partners, which oversees about $150 million in bonds. ``People are buying T-bills because you know exactly what's in it.''

Institutional investors added $39.7 billion from Aug. 14 to Aug. 17 to money market funds holding primarily government securities, a 12 percent increase, according to Connie Bugbee, managing editor of the Money Fund Report newsletter in Westborough, Massachusetts. Assets in funds that may also hold commercial paper, certificates of deposit and floating-rate notes fell 2 percent, or $24.5 billion, in the same period.

Three-month Treasury bill yields have fallen to 2.40 percentage points less than the London interbank offered rate, from 1.74 percentage points on Aug. 17. The ``TED'' spread, as it is known, is larger than after the 1987 crash. TED originally stood for Treasury-Eurodollar.

The Federal Reserve Bank of New York said in a statement it won't re-invest the $5 billion of Treasury bill holdings maturing on Aug. 23 through its System Open Market Account to give it ``greater flexibility'' to manage reserves. It is the first time the Fed redeemed the bills since the 2001 terrorist attacks.

The move shows the Fed expects banks to borrow that much at the Fed's discount window, compared with an average $187 million borrowed daily in the past year.

Slower Economy Expected:

More than half of the 21 primary government security dealers that trade with the Fed now expect the central bank to cut its target interest rate by next month from the current level of 5.25 percent.

``The Fed is going to lower the funds rate, it's a question of when,'' said Thomas Tierney, head of U.S. Treasury trading at Citigroup Global Markets Inc. in New York. ``Credit's gotten tighter, and it's going to slow the economy.''

Interest-rate futures traders see a 100 percent chance the fed will lower its overnight lending rate between banks by its next meeting on Sept. 18. Seventy percent of those bets are for rates to drop to 4.75 percent, while the balance is for a cut to 5 percent.

>> So that's where we stand. Today a meeting of the minds with Paulson and as long as he doesn't shoot himself in the foot with weak dollar talk and as long as Dodd doesn't come out spouting about all kinds of regulation.... we could fire out of this mess despite how bad the charts look.

>> I must say I have contacted all my sources for this report and I can safely say I am the only guy on the street calling for an 8% rally! That's stonedinvesting lets see how it plays out, today the S&P is at a point where I think real buying could come in... all we need is a little luck. ~ stoney

 

what fear in stocks? markets were it was 3 weeks ago and is still up 6% on the year. s@p needs to head to 1300 to wash out 5 years of speculation and complacency

 

Although you have a habit of rambling, I agree that the markets are going higher.

 

One of the problems with my personal vibe has been a failure to find the right song to fire myself up & out of this mess, I have gone to all the old standbys:
" My Mind " Jimmy Cliff, "This Is The Day" The The
" Crazy " Gnarles Barkley absolutely nothing is working... The tinge of fright inside me renders boisterous " Right here Right Now " Utah Saints type songs moot . What we need is CALM. Calm with a SENSE Of optimism. Ladies and Gentlemen I give you for today the perfect song for this whole mess I finally found it....

Wings & Paul Mccartney - With A Little Luck Lyrics


With a little luck, we can help it out.
We can make this whole damn thing work out.
With a little love, we can lay it down.
Can't you feel the town exploding?
There is no end to what we can do together.
There is no end, there is no end.
The wiliow turns his back on inclement weather;
And if he can do it, we can do it, just me and you,

And a little luck, we can clear it up.
We can bring it in for a landing,
With a little luck, we can turn it on.
There can be no misunderstanding.

There is no end to what we can do together.
There is no end, there is no end.
The willow turns his back on inclement weather;
We can do it, just me and you.

With a little push, we could set it off.
We can send it rocketing skywards.
With a little love, we could shake it up.
Don't you feel the comet exploding?

With a little luck.
With a little luck.
With a little luck, a little luck, a little luck.
With a little luck.
With a little luck.
With a little luck, a little luck, a little luck.

Yea baby! Don't you feel the comet exploding? = rally. With a little push we could set it off = rally.
We can send it rocketing higher = the market. With a little love we could shake it up = The shorts.

The willow turns his back on inclement weather? I haven't figured out that one yet as it relates to the subprime mortgage meltdown but Capital One's move today to shed it's entire division and take a huge charge that comes pretty close... and the stock is UP! That's the first sign of a market shaking off bad news, with a little luck, with a little luck, with a little luck. Find it. Play it. Live it. BELIEVE it.

With a little luck we can clear it up. Thank you Paul Mccartney!

PS: " what fear in stocks? markets were it was 3 weeks ago " Yikes you haven't seen the big picture friend, try buying small cap. Don't believe headline numbers look under the hood at overall breadth and compare the new low list now to your 3 week ago number....

 

Here we go 3:00 and I wanna rock but...
14:51:43 Comment SOX & SMH pressing near session lows & could trigger a last hour slide if they break support.... So this is the critical moment of todays trading. Indeed it has been a day by day affair but this down 50 and close even action like what we saw yesterday is just what we are looking for. It's far worse to jump ahead six consecutive days with puny advances and then have that ALL wiped out in one significant decline... this is more stable, we can build from this... but we must turn up here at 3:30 like yesterday....

To Be Continued....

 

after the rate hike chances of a decline are remote, it would look bad.

 

We're gonna get high, high, high, in the mid-day sun? ~8% is the long-term average annual rate of return of the market.

 

Oh baby did the bulls start too soon? This is going to be close even at 22 minutes to go.... GREAT action folks!

MOOD CHANGE barometer:: Shwing!
I got to say there's a feeling creeping over even big gloom and doomers on the floor. You have to read between the lines but my sense is that for the first time THERE IS A LIGHT AT THE END OF THE TUNNEL! Right now it's just Ben with a flashlight showing the way. Lenders can lend step one complete. Now to cover up the rest.....

What we need to know:

1> The extent of the bleed through to money market funds. This freaks me out. Sure investors are chasing yield and should know better but what if some folks are sitting in these MM funds unawares? I've never bought one of these but I've had cash in accounts automatically " swept " into money market funds in the past and the real criminal activity if there is any would be for an unscrupulous firm to split the difference> offer you a standard rate yet invest in these hybrid leveraged funds and skim off the difference in yield with you owning 100% of the risk. I have no evidence of this whats so ever but in dreaming up a plot recently it occurred to me....

If Something else is out there what is it? Can we forget long enough to go through an earnings period? And do we want to? When will slower growth show itself in corporate earnings... and can we offset that with a rate cut? There is a window of hope her ladies and gents and a certain calming down of the markets pulse... now we need a CONFIRM DAY!
And it must be on large volume...
With A Little Luck~ stoney

 

No rate cut with a rising market, sorry. The banks are in deep dodo they need that rate cut, not the discount, but FF.

Market may not go up till Nov.

 

Why, what happens in Nov?