Summary for Week Ending 18th August 2007
More violence in the financial markets again this week with more blood spilt than anyone considered possible. All This is still being put down to the subprime mess, and in all fairness there is some truth to the matter, although it has more to do with the tower of debt in reality. Everyone is concentrating on the subprime issue and the general expectation out there is that if you are not a SubPrime candidate then everything will be all right. Unfortunately, since this has has been leveraged to unreasonable levels, the evntual fallout could have much wider consequences. As a market observer quoted, we are a headline away from a real problem. What that headline may be, who knows, but what is evident is that people are spooked and the money flowing around is scared money, so any reason to bail will be taken. bear this in mind... ANY little issue has the capacilty to spook the market once again. As I write this a storm is working its way towards the Mexican Oil fields... lets see what happens there.
This weeks chart is a big one, compressing daily data to display from the low of 2002 to the high we just saw. Interstingly we can see how the market has stayed in the parallel channel, one which I have had on this chart for months now. See how late last week the market came ever so close to eth bottom rung and then took off, apparently on the back of Fed intervention, although it would be fair to say that the punters were looking for ANY reason to take advantage of the lower prices, but noone wanted to catch the falling knife.
Looking at the Low we saw on Thursday it came 31 days after the High. This gives us a possible 30,45 or 60 day rally to look for. Outside of this is 90 days but I'm not convinced that this is possible. On Thursday we saw a big volume bringing in the low, but it wasnt a capitulation type of volume spike, and the rally on friday was only half the volume of the previous day. Does this mean that we may see more lows ? Yes of course !
As things stand at the moment I'd have to say that we have seen the low in the short term, but the correction we have seen may simply be a harbinger of things to come. From a psychological pespective the worse outcome would be a strong rally as this would have all the muppets on board and the next corrcetion would be ignored as 'just another minor correction' instead of a true collapse in value and we would then witness true carnage on a massive scale. A orderly decline would be nice but I somehow dont think this is what we are going to see. I expect the low to hold this week, barring any outside interference and headline.
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