US Market will continue to drop, whatsoever

This week (ended 27/07/07) was the worst weekly drop in the US market since 2002, yet as MarketWatch covers it will continue to drop.

Stocks stumbled over the past week, with the Dow Jones Industrial Average losing 4.2% on the week after experiencing two successive sell-off sessions -- 312 points on Thursday, and 208 points on Friday. That was the worst week for the Dow since March 2003, and it ended up leaving the blue-chip average down 1% for the month so far, just one week after it closed above 14,000 for the first time. The Dow still sits on a gain of 6.4% for the year. The S&P 500 Index plunged 5% on the week and the Nasdaq Composite Index lost 4.6%.

But stocks will remain vulnerable to any new signs of distress from hedge funds hit by their exposure to bad U.S. home loans, as well as from credit markets, where Wall Street firms and corporations are finding it harder and harder to obtain financing.
(Read more)

Alpha Trends covers more specifically in an in-depth technical analysis as can be seen in this video analysis.
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Some of my notes:

Credit derivatives played by hedge funds have come to the stage that everyone is supposed to worry. A bad credit is not something to bet on.

The US market is a venue for global players or investors as part of their international equity portfolios. Sooner or later, it will spread to other bourses. Strategic and tactical allocation for a growth or aggresive portfolio must be rebalanced, or shifting to a balanced or conservative portfolio for the time being.

GDP rise is an economic sign and has nothing to do with the market sentiment. Last week drop proved it to be so, GDP rises but stockmarket drops. Credit can be so leveraged and multiplied by risky derivatives plays and may outpace GDP. Boom!

Moreover, one can acquire a huge position in stocks only because some investment banks provide the funds loans.

If technical analysis says a down trend, just sell-sell-sell. That's what it wants. Don't think and let's join the party. (sorry, i mean, the volatility).

2 comments:

johnorford Monday, 30 July, 2007  

ppl have been overly optimistic -- or overly good at pulling the wool over investor's eyes. soon they'll be overly pessimistic, it's just another business cycle that's all...

the question is: how overly optimistic have ppl really been?? :)

anymatters Monday, 30 July, 2007  

There are two kinds of people: one who invests in stocks and one who borrows in housing mortgage.

Some hedge funds have recently played in sub-primes (kind of almost defaulted mortgage) as part of their portfolio other than stocks, funded by massive borrowings from investment banks who hold their stocks as collateral.

They just failed from the sub-primes and in order to provide liquidity some stocks have to be sold.

I believe that in any free market economy people should not just be optimistic, because loanable funds and available liquidity are always limited and shared in an efficient market.

Unless you collaborate with the system/state to provide (issue/print) more money for liquidity and investment, like in a socialist or communist country.

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