Thursday, August 04, 2011

ECB Extends Liquidity To Troubled Europe

The market is sharply lower again this morning, despite yesterday afternoon's reversal higher. The concern continues to wash up on our shores from Europe, where conditions don't appear to be improving any. There has also been intervention by some central banks on the part of their currencies.

The Bank of Japan intervened to knock the rising Yen down, which had been hampering exports there. The Swiss National Bank also made moves to try to halt the rise in the swiss franc. This has served to boost the dollar.

In economic news, monthly same-store sales reports were mixed for the most part, which hasn't spurred any enthusiasm in retail stocks. All the sectors are sharply lower so far this morning. The only securities I see that are in the green are the flight-to-safety ones like gold, which is hitting new highs near $1678, and Treasuries as the 10-year yield drops down to 2.48%. Interestingly, the 10-year yield was lower than this last October.

Trading comment: Today feels like capitulation, as many stocks are down 5-7% and volume is very heavy. The market is very oversold, and the conditions for a sharp bounce are falling into place. I have been watching the investor sentiment indicators to see when they get jumpy, and we are starting to see it now. The volatility index (VIX) is up 22% today to 28.50, an extreme jump. The put/call ratio has been above 1.0 all week, and hit 1.45 earlier today. The bears in the AAII poll surged to 50% this week. And today the 1-month T-bill fell into negative territory! That means people were actually paying our Treasury dept. to keep their money safe. Trading bottoms are never pretty, and sometimes scary, but if you're looking to lighten up I think we are closer to that bounce we have been looking for.


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