Splat. That is the sound of selling the news after buying the rumour.
Tim Geithner unveiled some pieces of TARP II in New York today. But he still has no answer for the question everyone’s asking: how do you get the private sector to buy something it doesn’t want at a price it thinks is too high?
While you ponder that, ponder this as well. The Dow fell 4.6% today. The S&P, feeling competitive, fell 4.9%. Investors hated TARP II. If confidence was the name of the game, then this confidence game appears to be over, or at least stalled.
Here in Australia, the ASX/200 is at a technical pivot. Swarm Trader Gabriel Andre provides the chart below. In analysis he sent to Swarm readers earlier in the week he says the market may make a double bottom near 3,342.
In the early hours this morning we got on the Interwebs with Lord Swarm in Melbourne and asked him about the overnight action.
“Your level of 3,342 is just 146 points away. That’s only about 4.2%”
“Correct. Your math has improved on the Gold Coast.”
“Thank you. But with New York’s lead, isn’t it all but a certainty that the ASX/200 is going to challenge the old lows, and probably today.”
“And then what? If your chart is correct, it could be a powerful rebound…or a retreat to the 2003 lows.”
“Yes. It is possible. Both are possible. The ASX 200 will probably test the lows of last November. But if it holds there, the rebound that we expect after that will be quite generous. As explained yesterday in my comments, we are currently in a trading channel which is a consolidation phase. The future trend will depend on whether the price action will break this channel on the upside or on the downside.”
“Do all traders talk like this?”
“Yes. The only problem that may occur is if the Australian index breaks below the low of November during the next few days. The whole thing is on a technical pivot.”
“Well, at least from a trading standpoint, that’s pretty clear cut isn’t it? We either splash down at 3,342 or thereabouts and then commence a rebound. Or you have the very real chance for a new multi-year low. ”
“Yes but for traders that is useful information. If it’s a new low, there’s no point in punting on individual share rebounds (unless you have some compelling technical case, and the Swarm system is not showing this at the moment). If it’s not a new low, however, then there are likely to be some very good punts on the rebound, just as there were last November.”
After that, we broke for croissants and a latte.
Gabriel’s point is well taken. This is a trader’s market. And it’s at a turning point right now. One thing your editor has learned in the last eleven years of daily market observation is that when public sentiment reaches a point of maximum anxiety, it breaks like a wave crashing on the rocks.
This is not as bad as it sounds. What we mean is that though the general trend of the market is obvious-lower stock prices on a weak economy and a confused policy response to the crisis-you will often be surprised at when the rallies come and how high they go.
Gabriel’s technical indicators are useful for tipping you off. But intuition works as well. When you find yourself feverishly expecting the next bit of god-awful news, that’s when you get blindsided by a rally. It’s mostly likely because by the time you reach the point of maximum anxiety, most of the selling pressure in stocks has been exhausted. The order books are clear.
So, would we punt on it? Probably. Would we put the family silver on it? Of course not. Speaking of which, a note from a Kiwi reader about claims on gold versus actual gold.
I can’t help but notice that you’ve been harping on quite a lot about gold lately. How about sharing a cautionary tale from New Zealand with your readers?
We used to have a company that started out quite respectably as “Auckland Coin & Bullion”. Then, in the heydays of the ’80s, when it was fashionable for high-flying companies to be known as some sort of “_corp”, they changed their name to “Goldcorp”.
I remember going in to their offices one day, after the ’87 crash, to buy some gold. After paying over my money, the woman behind the counter then proceeded to write out what I thought was a receipt, which she then handed to me. “There you are” she said. “All done”.
“What’s this?” I asked.
“It’s your proof of ownership. You now own a portion of a much larger bar which we hold in our vault.”
“But this looks like a piece of paper to me. I said I wanted to buy gold.”
“Oh no. Nobody does that nowadays. It’s much too risky. We store all our customers’ gold in our vault. And it’s a free service”.
“Well not me. You can have your piece of paper back, and I’ll have some gold”
There followed a lengthy exchange where her supervisor was called in, and I was treated more like a criminal than a customer. But eventually I walked out of there with the gold in my pocket.
A few months later in 1988 it was all over the news that Goldcorp’s vault only held a small fraction of what they were supposed to be holding for customers. There was the inevitable rush from mum-and-dad-investors clamouring to redeem their paper certificates before Goldcorp collapsed. But the bank had got in first and already cleaned out what little gold there had been. So those mum-and-dad-investors were left empty handed.
Many New Zealanders, who had lost their money via the share market (which deep down they had known was risky) were puzzled as to why any investor who chose to put their money into a ‘safe haven’ like gold, would then be foolish enough to trust that gold into somebody else’s care. A generation of New Zealanders were permanently put off investing in gold. The moral here is to take physical possession. Always.
That’s it for today.
for The Daily Reckoning Australia