Thursday, August 09, 2007

Fear Feeding On Itself

Another day of volatility in financial markets all across the world:

Aug. 9 (Bloomberg) -- U.S. stocks tumbled as subprime mortgage contagion and hedge fund losses halted a three-day rally and sent brokerage shares to their worst rout since 2002.

``The fear is feeding on itself,'' said Jeffrey Kleintop, who helps oversee more than $173 billion as chief market strategist at LPL Financial Services in Boston. ``It's what you don't know that seems to be taking over the market.''

Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. led the declines after BNP Paribas SA, France's biggest bank, barred withdrawals from funds that owned subprime loans. The Dow Jones Industrial Average fell 387 points and the S&P 500 slid 3 percent, their worst declines since a Feb. 27 drop spurred by a sell-off in China.

The S&P 500 decreased 44.4 to 1453.09, while the Dow average fell 2.8 percent to 13,270.68. The Nasdaq Composite Index slipped 56.49, or 2.2 percent, to 2556.49. A gauge of stock market volatility rose to a four-year high.


Losses swept through all 18 western European markets and wiped out more than half of a three-day recovery in U.S. markets. A jump in rates charged for overnight loans and speculation that more banks and brokerages will report declining values in credit investments exacerbated the selling.

Bonddad offers his analysis of the day's action:

There was a ton of bad news in hedge fund land today. As a result, traders realized there were still some major problems in the credit markets. Hence the sell-off.

The markets opened lower, rallied for an hour, and then headed lower for the rest of the day. Also note the markets sold-off at the end on heavy volume. This is never a good sign because it indicates traders don't want to keep positions overnight for fear of what news will come out between the close and open.

On the other hand, if no bad news comes out overnight about the subprime mess, tomorrow should be a +200 point day for the Dow while the Nasdaq and the S&P should make healthy double digit gains.

Today's big losers - Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. - were big winners yesterday.

Amazing what one day can do to the market.

How much longer can this insanity continue?

Comments: Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?