Emotionally, it's felt to me like the markets have made their final lows. However, I've said that to myself several times in the last few weeks. Truth is, though, we most likely haven't.
Most of the experts I've listened to or read believe this to be the case because they are waiting for a big charge in the CBOE Volatility Index (VIX). According to this article, we're not even close to a Vix value that would indicate an upward trend is around the corner. As I write this, the Vix stands at around $23.50. Many believe it needs to be something like 50% higher to indicate the towel has been thrown in by traders and investors, thus signaling a potential bottom.
This is tough on the investing psyche. People are looking at stocks like Citigroup (NYSE: C), Disney (NYSE: DIS), Coca-Cola (NYSE: KO), and General Electric (NYSE: GE) and saying to themselves, "How much lower can this go, this has to be a bottom now!" Nope. Volatility is king of this domain, and it will need to spike before institutions and hedge funds believe that it's time to put cash on the sidelines to work. Until this happens, fresh 52-week lows may be the order of the day for a long time.
I wasn't fooled on Monday, and neither were you most likely. Right now, oil seems to rule the marketplace (not that financials are out of the picture, mind you), and until that bubble is popped by an interest-rate hike or some other mechanism such as reduction of demand, the bears will be feasting upon the longs. I would love to see a day where the Vix powers up like the proverbial parabola, GE goes to a 5% yield, and an indication comes around spelling out for certain that an interest rate increase is an absolute lock in the minds of the experts. Feels weird to be saying this since I own some financials, but yes, I believe in the dollar-oil theory and think Bernanke will be a necessary agent in bringing things back to order. Of course, geopolitical events might mitigate the effects of such Fed action, but it still seems requisite at this point.
So, keep watching the Vix. Until you see a positive development in this indicator, trade very, very carefully. If you're a value investor, make sure you realize you may be waiting a long time. And if you're a trader, make sure you realize you can be turned into an investor at any moment.
Disclosure: I own Disney, Coke, GE; positions can change at any time.
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Reader Comments (Page 1 of 1)
7-09-2008 @ 4:29PM
Ben Jantzen said...
Stop dreaming Wall Street. You have a long way to go before it bottoms out. The downward spiral that the Bush administration has put us in by reckless out-of-control spending (trillions of dollars on a useless war) is going to continue for months. You won't see the bottom until below 9000.
7-09-2008 @ 4:42PM
william lindblad said...
I am not that bearish, but I do think that 10,000 is a reality - and soon. Seems like many had an epiphany today regarding the status of the financial sector. It takes time for reality to sink in. We have not bottomed out.
7-09-2008 @ 5:09PM
smokin3000gt said...
Some of many people believe that the number should probally look something close to 50% ??
Talk about the 'falling sky'. Besides oil, consumer confidence is a big factor. If I feel the economy is rocking I'm more likely to build a house. All of the people building the house have work for that week. That means more money for them to spend on things that involve other people and businesses to produce and ship. All because of my optimism. Obviously on a much larger scale, but you get the point.
Another example is how someone predicts record price oil, oil shoots up to that price the next day.
THE MORE THAT people spread doom and gloom the worse off we are going to be. AS FAR AS 'We are DOOMED because of the republicans!', GET REAL! Remember when you thought a democratic house was going to fix our world problems?
I've got NEWS FOR YOU. The housing crash wasn't because of Bush. Depite what you heard at the water cooler. It all boils down to the BANKS approving people they SHOULDN'T for loans! Don't forget about the appraiser OVER appraising houses that were getting refinanced, shooting up prices.
7-09-2008 @ 5:23PM
gerald said...
If you think this market has hit bottom then you need your head examined.