Capitulation? Doesn't Feel Like It Yet!
A: Taking a focus on the markets now because its important to discuss whats happening here. Citigroup sucked the markets. Investors realize that write-downs will not be done this quarter, and that a fed rate cut probably won't come until the next meeting. Seems like we are close, but I don't get that sense of panic that is so necessary to ultimately form a bottom.
I did think the fed would pull the trigger and cut inter-meeting by now, not that I want that given the commodity inflation problem, but I thought the markets would squeeze one out of Bernanke by now after that awful jobs report 2 weeks ago.
I spoke about capitulation in November:
The credit crunch is stealing all headlines today, and you know it will spur major media during the week to write fairly negative articles that will reach millions of investors across the country. I feel that a capitulation day for the stock market is nearing;Turns out the Countrywide call wasn't too far off as Mozilo had no choice but to be bought out by BofA! If they hadn't, they probably would have been forced to declare bankruptcy.
Anyway, I think all we need is one piece of really bad news to start a panic selling day, like a Countrywide Financial filing for Bankruptcy protection as credit downgrades limits availability to raise cash; or something like that. Give us a DOW day of -450 and a NASDAQ -80 or so, and I think it will be enough to qualify.
Right now the DOW is down 2% and NASDAQ down 2.5%. I said in November to give us a DOW day of -450 and a NASDAQ day of -80 or so and that would probably qualify. Not quite there yet but volume and volatility is quite high! Citigroup dropped the ball as they didn't give investors the 'full plate' of bad news! That means this will drag on for another few quarters and prolong the uncertainty. Even given inflation concerns, I just don't see how the fed won't act aggressively at the next meeting. I would expect 50 bsp cut in both fed funds rate & discount window. If we don't get that, the market will likely selloff.
Also, if this stock selloff continues, a negative wealth effect is bound to set into consumers' minds as the media always amplifies the falling value of many people's portfolios. A painful process, but we need the panic selling to work itself through for stocks to form a bottom.
Posted by Jeff
Tue Jan 15th, 2008 05:46 PM
Noah,
It definitely feels like the market finally got hit across the head by the 2X4 and understands that the level of doo doo is rising to an uncomfortable depth. I'm with you that we may have a near-term selling climax soon. Which is why i'm looking to take about 20% of the money I have earmarked for stocks and put it into the market. However, stocks aren't seen as expensive right now (although people are realizing 2008 EPS estimates need to come down), so I have trouble seeing a real crash. Yet, I also see a lot more disappointment with the economy and profits ahead....worldwide...gulp. So i see this bearish market period as being a longer grinding affair, rather than a near-term climax and then "alls clear." I'm a patient scale buyer here of value stocks.
Posted by Sang
Tue Jan 15th, 2008 10:00 PM
Hey Noah,
The VIX doesn't show 'capitulation' yet- it still has ways to go upwards before we can consider the bottom.
Intel tanked 13% after it released its earnings after hours. Capitulation may indeed be coming, unless of course, BenDover comes along and slashes before Jan 30.
First, he needs to wait and see the CPI data tomorrow, then discuss with colleagues. If anything, he *may* cut on Fri, after his Congress testimonial.
However, being so close to Jan 30 already, chances are that he won't cut unless we do get 'capitulation' which means, to be blunt, a crash.
They need to save their ammo as it is limited. Japan had to learn this the hard way, and they ran out of ammo very quickly, stuck to near zero for the longest of time.
Posted by Noah
Tue Jan 15th, 2008 10:14 PM
couldnt agree more Sang!! Great to hear from you again! Yes, They need to save ammo as it will be needed in the near future!
Posted by Noah
Tue Jan 15th, 2008 10:16 PM
Jeff - yea I get that feeling too. I think there will be a tradable rally here if fed is going to make an aggressive move, but that to me is an opportunity to selloff my positions that I have been dollar cost averaging for past 4-5 weeks. INTC is going to hurt the big cap techs tomorrow, and that will probably follow through with days of selloff in those stocks. Global slowdown is all I can think of given uncertainty.
I wish I was long more SKF and GOLD as I think its going to be a rocky ride for near term!