Monday August 15, 2011
2008
In the summer of 2008, the SPX declined by 220 points from 1420 to 1200. The market then reboounded about half of that fall.
2011
NOw let's fast forward three years to the same time frame ending today.
The market has fallen, in the summer months, from 1350 to well, 1125-1100 (briefly), a fall of about 225 points. This is an eerily similar fall ...
1. of about the same total points, 220-225
2. one month moved forward.
3. it did occur in less time indicating a more heightened sense of 'panic'
4. MACD bottomed then as now and the markets recovered about half the fall into late August
And then
the whole thing fell apart in Fall 2008
Now compared to the 'story thus far' in the first graph, in retrospect the summer sell off and recovery in 2008 do not look like a big deal, no doubt this is how investors were lulled to nonchalance about it all.
But clearly the summer sell off foretold a much larger decline in the seasonally weak fall.
As I thought about it, I went back and placed the volume in the bottom pane. Yes sure enough, on the summer decline volume peaked at the low in the market . On the rebound to 1300, volume declined dramatically, ie, there was not enough volume to regain the previous highs and overcome the selling pressure. Then volume dramatically expanded into the fall on the collapse.
So TMP will faithfully track price and volume, notice we have taken that into account this past week noting the lower volume this past thursday and friday.
We cannot of course blithely assume that history will repeat in exactly the same fashion. But the increased sharp sell off in 2011 compared to 2008 certainly has my attention. IN addition everything else, emerging markets and oil, have also fallen into place now as then. Recall that oil started falling from July 2008 and never looked back. This time it has paused and bounced. Be sure to readFeuerstein's comment on oil in the previous post, he expects $60. That seems reasonable to me. And of course it would completely collapse all the alternative energy schemes like wind and solar as well as much of the recently expanded shale gas plays. This is how energy peaks always end. The price of crude gets cheap so fast again that all hopes of 'alternative energy' are dashed The alternatives always require infinite periods of high oil prices coupled with massive government subsidies as they are never price competitive anyway.
I was just watching a PBS documentary on the Crash of 1929. A descendant of legendary Jesse Livermore remarked that they had stock tickers in their various houses. And back then seemingly everyone was invested in stocks. Anyway, it occurred to me that now, everyone has a stock ticker in their house via CNBC or about any cable news channel. And we have portable stock tickers in the form of cell phones with internet capability. And all the pension promises in America now hinge on, yes, stock prices.
Another notable 'advance' of the 1920s was buying appliances on credit, a little bit down and pay things out. If you think about it, buying on time has now become more than that, as the debts are sold as
CDOs, collateralized debt obligations to investors and the public. And so we have moved the debt off the balance sheets of the originator into the homes of every American. We're all on the Titanic now....
Well we have certainly ramped up the bets in three to four generations.
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