When Will the World End?
by David Yu
It was really great taking a few days off last week. I haven't done too much trading lately. I've been mostly in cash and waiting on the sideline anyway. During my mini vacation, I visited some major casinos and found no discernable drop-off in foot traffic or buffet lines although casino gaming stocks have been following similar pattern of decline as the rest of the stock market. There are potential buying opportunities. We'll discuss that in the future when I have more time.
I had also taken some time studying for my broker's license renewal last week. After passing the 4-hour final exam on Friday, my license is now good for another 4 years, or till the year 2012. Coincidentally, that's when I believe the real estate market will hit the REAL bottom. I'll write more about that soon. For now, let's turn our attention back to the stock market.
At the time of my writing, overnight markets in Japan, Hong Kong, and China are all losing more than 3%. Japan's Nikkei Index is now trading below 12,000 for the first time since 2005. The parabolic rise of Japanese yen is hurting both the Japan's export-centric economy and its stock market. Yen is now trading at 96.87, which is about another 2.50% increase from Friday. Meanwhile the Dollar's on the verge of falling below 71, another record low.
The Dow's future drops more than 200 points as Bear Stearns agreed to sell itself to JP Morgan for merely $236 million, or $2 a share. Bear Stearns was worth $3.5 billion just on Friday and was worth $20 billion a year ago. The Fed also provided $30 billion in financing to facilitate JP Morgan's acquisition of Bear Stearns. In addition, the Fed announced today that securities dealers may now borrow from the Fed on the same terms as banks. The rate charged at the Fed's discount windows had also been lowered by 0.25% to 3.25%.
On top of all that, bloodshed in Tibet appears unlikely to end any time soon. Anti Chinese government protests are now spreading into other parts of western China.
When will the world end? Gosh!
For those of us who have been accumulating gold and silver diligently for the past few years but don't really understand the gravity of it all, I guess things couldn't have been more lucid now. Speaking for myself, I was really just having fun collecting and playing with the bullions. I had no idea then that looking at the quadruple-digit gold price now could help ease the market anxiety. Gold truly shines while we're going through all the turmoil of war, political transitions, Dollar crisis, and credit crisis.
Meanwhile, amidst end-of-the-world gloom and doom pessimism, the A/D (Accumulation/Distribution) indicator continues to stay defiant. As a "Volume Technician", I tend to pay more attention to technical indicators that incorporate volume fluctuations than just the price movement. The 14-day moving average of the A/D Indicator (gray line on Chart 1 below) had been in an uptrend after it bounced off the January 23 bottom even though the market had been trading between 1275 and 1400.
Chart 2
There are other technical divergences at work. I'm afraid we'll have to continue this discussion later in the week. It's already passed midnight. I'm totally worn out. Let's see if the January 23 intraday low would hold up.
email: dyuguard-2@yahoo.com