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Client 9, charts and Commodities double-topping,
By Rob | March 18, 2008
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I have been trying to get in touch with a friend who knows the girl of Client 9. So far we can’t get through for a good interview. So in the meanwhile let’s talk about something else.
I am wondering if Bear Stearns is the Drexel, Burnham of this market turmoil, taking the final lap of this downward spiral, or simply the first of many major tombstones to be erected in remembrance of financial institutions that succumbed to the subprime mess.
At the same time, with Sunday’s 25-bp cut in the discount rate, as well as expected Fed funds rate cut of around 100 bp on Tuesday the Fed is attempting to stimulate and stabilize the economy in an effort to avert the unavoidable. Unfortunately, Sunday’s action likely stoked rather than soothed investors’ fears, yet one can’t be too critical unless one has a better solution to offer.
The 1270 on the S&P 500 may not be the bottom of this market decline. More likely is that the S&P 500 retreats to the 1170 level, which is the critical support and retracement level. It would also represent a 25% decline from the October 9, 2007 high on the S&P 500 of 1565. That would equal to the average equity market sell off in anticipation of economic recessions since 1945.
There are two things that will happen if we fall to 1170:
- investors will eventually see that the safety of U.S. Treasuries will not offer sufficient protection against inflation and taxes, as witnessed by the difference between the current 3.33% yield on the 10-year T-note and the earnings yield of 6.68% for the S&P 500 based on operating earnings for the second quarter of 2007 through the first quarter of 2008
- the trailing P/E on the S&P 500 would fall from the current 15.2 (at Friday’s close of 1288) to 13.6 and represent a near 30% discount tothe average P/E of 19.3 since S&P started capturing operating earnings in 1988. In addition, based on S&P equity analysts’ S&P 500 estimated operating earnings of 96.71 for 2008, the P/E ratio would decline to 12.1
Here are a few charts from Trader Mark. This one shows how the SP500 closed still above the Jan lows.
And this one shows the Nasdaq in a super donward-looking channel
Last see how the commodities are starting to break down, posting almost a double top. Eventually every part of the market will get sick and these guys are the next ones to go.
And for those of you who believe that GOOG is safe, there are a host of companies coming up with ways to steal its advertising revenue. Also Windows Vista service pack 1 has arrived.
See you all tomorrow.
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