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Capitulation nation

Monday, October 06, 2008

As an investor, Bob Hoye is as sickened by Monday's stock market selloff as anyone. But as a professional market watcher who often delves into the historical nitty gritty, the editor and chief investment strategist at Institutional Advisors, can see an upside to the market plunge.

He noted that sharp downturns in the stock market can last 55 trading days, from start to finish.
The most recent leg of the downturn, for the Dow Jones industrial average and the S[amp]amp;P 500, began in late August. That[amp]nbsp;means that this one may near its conclusion toward the end of October.

History also suggests that if you suffer through a stock market disaster in the autumn, the volatility will usually conclude – again – before the end of the October.
Third, his firm has an in-house model, using six parameters, which gives them a signal of capitulation for the Dow and the S[amp]amp;P 500. If the model sends another downward signal this week, it will show a capitulation level seen only eight times since 1900.

“It looks like this week is going to be down,” said Mr. Hoye, a long-time bear. “When we conclude this signal, the rebound can be within a week or a maybe another week after that. But the rebound is inevitable.”

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Stocks in freefall as financial crisis spreads

STEVE LADURANTAYE
Monday, October 06, 2008
Stocks in Toronto plunged Monday, joining a global selloff sparked by concerns about a $700-billion (U.S.) bailout package for the U.S. financial sector and the spreading bank crisis in Europe and Asia.

The S&P/TSX - down 11 per cent earlier in the session - lost 5.95 per cent, or 642.32 points, to 10,161.03 by 11:45 a.m. (ET). The index last closed below 10,000 July 4, 2005.
The Dow Jones industrial average traded 4.38 per cent lower, down 452 points to 9,873.38 – the first time it has traded below 10,000 since April 2005. The S&P 500 fell 4.70 per cent, or 51.68 points, to 1,047.55.

“Breaking below 10,000 is a psychologically significant thing for investors,” said Kenneth Norquay, a partner at CastleMoore Inc., a portfolio-management company in Oakville, Ont. “Those big round numbers – like $1,000 gold, 10,000 on the indexes – can become very important as benchmarks. Just how important, I guess we're about to find out.”
The energy sector – which is weighted second behind financials on the S&P/TSX, fell 9.5 per cent in morning trade as oil slipped below $90 a barrel for the first time since April. It touched $88.99 a barrel early in the session, but recouped some losses to trade at $90.82 – still a loss of $3.06.

“The Canadian market is going to keep getting lower because of the effect of commodities,” said Brandon Osten, president of Venator Capital Management Inc. in Toronto. “Get the hell out of commodities - it's not too late for you. Oil can go back to $65 a barrel. Any out there who thinks $90 oil is low by historical levels needs to take another look.”

No sector was untouched – utilities and health care were each off about 7 per cent, industrials fell 5.6 per cent and consumer staples 6.8 per cent. Technology was faring the best, down 1.12 per cent.

The American bailout plan was created to get banks lending to each other again, after the subprime-mortgage crisis wreaked havoc on American financial markets.
The U.S. government was forced to take over mortgage lenders Freddie Mac and Fannie Mae in September to protect $5-trillion in mortgages, and also rescued insurer AIG Corp. with an $85-billion investment.

Meanwhile, Lehman Brothers Holdings Inc. declared bankruptcy, Merrill Lynch & Co. Inc. was taken over, and Goldman Sachs and Morgan Stanley restructured into depository institutions.
The ripple effects extended deeper into Europe over the weekend, with Germany bailing out Hypo Real Estate AG, and France's BNP Paribas throwing a lifeline to financial group Fortis. The European Central Bank flooded markets with $50-billion Monday, while the Bank of England contributed another $10-billion.

Losses on major indexes around the world Monday included 4.5 per cent drops in China and Japan, a 5 per cent drop in London, and a 5.1 per cent drop in Germany. Norway's commodity-heavy index was off 9.95 per cent.

“There are worries rushing round the banking sector as markets try to account for the potential disparity that could be seen in savers' trust in deposit accounts and the knock on effect this will potentially have on the viability of institutions,” said London-based CMC Markets dealer Jimmy Yates. “All told it's not looking pretty and it does seem as if we may now have to resign ourselves to seeing further casualties along the way.”

More to come
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