Markets Plummeting! Just The Beginning??

Discussion in 'Trading' started by CalScholar, Feb 27, 2007.

  1. Anyone thinking that today's plummeting markets are the beginning of an overdue correction / bear market? Anyone changing their strategies -- focusing on short opportunities as opposed to long ones?

    In my (perhaps unqualified) opinion, the markets are indeed heading into a correctionary period that could see valuations drop significantly across the board. Among others, I'd be looking at the metals sector (tie, ati, etc.) to give up a good deal of ground. Also, a number of tech stocks that have enjoyed big gains over the past several months (or years) should come down as well.

    Any thoughts? Am I simply to naive to understand that today's drop is a soon-to-be forgotten aberration in an otherwise bullish market?
  2. Arnie


    Plummeting? The DOW is down less than 1.5 percent. Everyone is expecting a nice quick correction and then a recovery. What if we just drift lower and lower over the next few months. Kinda like this bull in reverse.
  3. Yes, perhaps plummeting was too strong a word.

    I agree that the markets may simply "drift" lower over the course of several months (in fact, that's what I meant).
  4. Arnie


    As of late, the market has been focused on earnings, the likleyhood of the Fed easing and a soft landing in housing.

    Earnings, at least the growth in earnings, is slowing.

    The Fed may be forced to raise in the face of a slowing economy (I don't think this is likely, but it is a possibilty, especially if you consider that my bet is the Fed left at least one bullet in their rate hike gun).

    Housing is looking worse, not better. Just today Freddie Mac announced that beginning in Sept 2007, borrowers will have to qualify at the HIGHER rate on option ARM's. Considering the general tightening of standards, a lot of buyers are going to be left out.
  5. could depend on what is said here..

    Ben Bernanke Speaks! Wednesday - Feb 28, 2007

    10:00 AM ET : Federal Reserve Chairman Ben Bernanke to testify about U.S. fiscal challenges to the House Budget Committee, in Washington .

    Ben Bernanke Speaks! Friday - Mar 2, 2007

    11:00 PM ET : Federal Reserve Chairman Ben Bernanke to speak about globalization and monetary policy at the Stanford Institute for Economic Policy Research summit, in Stanford, California. Audience Q&A expected .
  6. I like the movement, that's all I care about. I think all traders want more volatility.
  7. reejay59


    It's OK if the market drifts lower. Just another way to make $$$ although some cannot or will not short stocks. Try lurking on a Yahoo! stock message board sometime and marvel at the number of people who are long positions when they really should be looking to get out and go short. It's quite brutal at times.

    Long or short doesn't matter to me because it's the market that decides what IT wants to do, not me. If the market does decide to turn here and go lower I would find a slow drift down preferable.

    Good Trading :cool:
  8. Now they got what they want and they are not liking it if they bet on the wrong side. :D

    Kass: Short Side Never Looked So Good

    By Doug Kass
    Street Insight Contributor
    2/27/2007 11:34 AM EST
    Click here for more stories by Doug Kass
    I am on the road traveling today, but I wanted to say that on Monday, for the first time since early 2000, I went all in on the short side. That is a reflection of how negative I am about this market.

    Despite too often sounding like the boy who cried "wolf" in light of the continued market ascent, I have spent the past several weeks outlining my investment rationale and my major concerns: heightened debt loads among consumers, the government and hedge funds; rising mortgage credit losses, which will weigh on a spent-up, not pent-up consumer; nascent inflation, seen in rising raw materials spot prices and crude lately; the ever-present specter of geopolitical tensions; and corporate profit and profit margin vulnerability.

    Above all, investors are not being paid for risk -- and excessive valuations are not being recognized. As Robert Marcin pointed out Monday, today's median P/E of 20.5 times trailing earnings of the Value Line composite of 3,000 leading companies compares to 14.5 times at the market's top in the fall of 2000; meanwhile, credit spreads and volatility --expressions of copious complacency -- remain at record low levels.

    Here are some reasons we're at such a precarious point.

    . Brokerages and money center banks are rolling over badly and remain a negative short-term market tell.
    2. Hedge fund net-long invested levels (61%) are at the highest level and the AAII survey has bears at the lowest level since December 2004.

    3. The daytrading in the Chinese market has begun to eerily resemble daytrading in the Nasdaq, which peaked seven years ago. (The more things change, the more they are the same, though the location changes.)

    4. Virtually every hedge fund has the yen carry trade on its books, and recent signs in the currency markets indicate that the trade is getting less compelling. (If it does begin to unfold, the young hot money -- especially in the emerging markets like China -- could reverse in a nanosecond).

    5. Further signs of speculation are the press mentions (and market reactions) of far-fetched takeovers. A classic example was Monday's item in England's Sunday Express that Dow Chemical (DOW - Cramer's Take - Stockpickr - Rating) might be acquired by a private-equity group. The shares briefly rose by 8% in response.

    Two weeks ago, England's Times of London published a report that Countrywide Financial (CFC - Cramer's Take - Stockpickr - Rating) would be acquired by Bank of America (BAC - Cramer's Take - Stockpickr - Rating). Again, the shares rose by nearly 10%, though they have subsequently declined by nearly 15% as subprime problems have grown. The outsize reactions to less-than-legitimate sources is typical these days.

    6. History shows that four-year extensions of bull markets, out of deep oversolds, often morph into disaster: 1932-36 (1937 crash); 1957-61 (1962 crash); and 1982-86 (1987 crash). We're well into four years in the current stretch.

    7. Writing again on history (and technical voodoo), over the last century every decade has seen a market crash/deep correction in the sixth or seventh year of that decade.

    Above all, the lifeblood of the bull market is the availability of credit, and the subprime issues (dismissed by most, not surprisingly) are putting a halt to lending that for years has disregarded creditworthiness and plain common sense. As night follows day, personal spending will plunge just at a time when most believe the consumer is invincible.

    The opportunities on the short side have never been more attractive, just as the signs of a breakdown of the impressive bull market run have started to appear -- a potentially lethal combination.
  10. Arnie


    OK, you can call it a plummett!:D
    #10     Feb 27, 2007