Monday, July 14, 2008

Crystallizing Events





One thing that often helps to identify market and sentiment extremes is what I call the crystallizing event. It is usually an event in the economy or the political word that embodies or affirms the reasons for the current level of bearish or bullish sentiment. 

Right now there is a lot of bearish sentiment in the markets. Last Friday one of the largest mortgage lenders in the country, IndyMac Bancorp failed and was taken over by the FDIC. Friday also saw a panic by shareholders of Fannie Mae and Freddie Mac. Trading in their shares reached record levels and in early morning trading these stocks had fallen  50% from Thursday's close.

Above this post you see two screen shots of MarketWatch, one taken at 10:45 am ET and the second at 3:01 pm ET. Above those screen shots you will find images of the front page of the New York Times for Friday, Saturday, and this morning.

I think the triple whammy of IndyMac and Fannie and Freddie will mark the bearish extreme of sentiment and of the stock market averages.  Things will start to look better from here on.

14 comments:

Dennis said...

"I think the triple whammy of IndyMac and Fannie and Freddie will mark the bearish extreme of sentiment and of the stock market averages. Things will start to look better from here on."
From your lips to God's ears.

Anonymous said...

I hope so, Carl. I'm long but scared. I'm guessing the shorts are too. BTW, Apple sold 1 mil I Phones in the first weekend. Analyst estimates were mostly around half that number. (Disclosure: Shameless plug for my long.)

Anonymous said...

This year we only have 5, in 80s bank and loans, we have 3000 failure. I think it is a tip on iceberg

Achal said...

Barrons had a cover proclaming a bottom in housing.
Does that fit into your cover theory in any way?

Anonymous said...

Carl, you got stopped out right? I saw 1235 print.

chop chop said...

Carl,

You can keep posting these newspaper articles and all the bearish news out there... I think your time for market direction is up! I think you got stopped out at 1235 and would like to know when will you re-enter and tell everyone that we are heading to 1500 again!

AP said...

definetly stopped out ... bottom is near but we are still missing that panic in the market when indexes are between -3% -4% intraday. But that should come soon I believe

chop chop said...

To Carl's credit, he does put his opinion out there. Im a newbie at this game, and i really dont know how people make money in the market. Carl is not the only one who is saying we will get a bounce and so many have been stopped out!

Unless you have an inside lead, i dont know how people can perdict a market. This past week alone, so many traders got stopped out and im talking about the pros!

Good Luck

Anonymous said...

Hi Carl,
I was surprised knowing you went long on Friday. The box on Daily chart is not yet completed ... still need to reach near 1164. On the weekly chart too the line 1 1/2 (multiples of 768) represent a nice confluence of targets with 1164.
Mario

chop chop said...

I think we end up GREEN by the end of the day! Technicals on my screen are flashing BUY BUY BUY...

Anonymous said...

Hi Carl,

Needless to say, I was also stopped out of my long position at 1235.0 as well, and I reinstated my short position at that price. If we do not recover today, then my next broader model tells me we should see serious buying at the 1156.80 level no later than August 20th, provided we continue lower and IF we actually get down to that price.

Thanks.

Kindest regards,

PM

Tom said...

This is not a slam on your prediction but a legitimate question. The market was equally as oversold right before it crased in 1987. Equities seemed a compelling buy on Oct. 16th and as you know they became even a better buy on the 19th.

It doesn't seem like we have seen the capitualtion we need to form a bottom.

Crash or rally from here and why?

Anonymous said...

Carl,

Thanks for time and energy you give us through your blog.

Todays entry looks remarkably similar to your Saturday, March 22, 2008 entry. It strikes me that we will see more of these headlines through next year; "FDIC broke" and "USA looses AAA" are potential examples.

If your time scale for "Things will start to look better from here on." is a few weeks, there might but some hope, but longer than that appears to be touching a red burner; painfully hot.

Thanks again,
Kimo

Carl Futia said...

Well, I just googled the three words: capitulation stock market. I got 155,000 hits. The first 10 pages were almost exclusively recent ones.

This is at least a little bit of evidence that an awful lot of people are looking for "capitulation" before being buyers. Frankly, I don't believe the market can accommodate so many eager buyers, so I doubt it will give them the chance they are looking for.

Along the same lines I might also observe that "capitulation" is generally arises from fear that is induced by falling prices, not by news events in the economy. But prices a low now because there has been a ton of bad news over the past 6 months. What surprises me is that the averages are not much lower than they in fact are today. Who is buying?