Things can get worse, a lot worse.
Market Alert! 2008-07-14
OK, in response to Danny, I haven't a clue about Russia, so at this time I have no comment other than to say I would rather invest in China, something I know and know well, than to put money into a country that I have never even visited. Given all the false press on China, I won't even to pretend that the U.S. press on Russia is accurate. So, I just don't know.
And now on to what I do know a bit about: bear markets. And all I can say, as I did last Friday, is watch out below! As of today, we had the big down day in banks I was looking for to give us a clue as to whether or not the banks (i.e., the BKX) were going to break support. Today banks fell nearly 10%, and that is as a sector, which tells me that banks are on very, very thin ice at the moment. If you remember, the BKX had 10-year closing support at 60, and 10-year intraday support at 54. Well, today banks tanked and the BKX landed at 50. This is the level I have been watching to determine whether or not I should proclaim that the banking sector was really breaking long-term support. After today's action and news, I am about certain that banks have further to fall. The only thing going for banks right now is the fact that the so-called "experts" are doubting that banks can fall any further. But if you look at history, I would say that if banks continue to fall from here (i.e., breach 50 on the BKX), that they can easily fall to 40. After that, 25-30 is completely possible. If the BKX drops to 30, banks will be down 75% from their high. That would be a total, bear market wipe out (pretty much what the homebuilders have experienced already...and noticed that ITB is hanging on at the moment). So, given the problems in the banking sector, and the fact it looks like the BKX is more likely than not breaking down below long-term support, I am just sitting back and watching for now. If the BKX is going to drop to 25, that means it will have to lose 50% (50%!!!) of its current value. So we are talking Citigroup (C) at $8.00, Bank of America (BAC) at $11.00, and Wachovia (W
possibly OUT OF BUSINESS! If this does play out, then you need to have some money ready to buy when the BKX gets near 30. Because if that happens, you can expect to hear me screaming "BUY"! Until then, just sit back and watch a while. If you contribute more money in this environment (i.e., right after the BKX breaks long-term support), you must be prepared to take endure some portfolio degradation for a while.
Having said all that, I am not selling any of my KBE. I am done buying for now, and will buy more later if we do get a total blow out. After all, 10 years from now I will be shocked if the KBE is not back to where I first started buying it, at around $42. But for now, the risk is to the downside. Breaking 10 years worth of support is nothing to play around with, so I am not buying any more until we get some direction on the banks or a really, really good deal.
Oh yeah, my comment on Wachovia above is for real. The BKX is down less than 60% from its all time high, but Wachovia is down over 80% from its all time high. In other words, the rest of the banks would have to drop another 50% from their current levels to catch up with Wachovia. Wachovia's stock price must be telling us something. Otherwise, why would it be down so much worse than the banking sector as a whole? As a matter of fact, today CNBC's Bob Pasani reported that two years ago Wachovia spent over $26 billion dollars to acquire Golden West, but as of this morning Wachovia was only worth $21 billion. Is that normal?
Could Wachovia be the next IndyMac? We will no more later. Until then, Happy Investing (and be glad that your bank deposits are FDIC-insured)!
Gregory
OK, in response to Danny, I haven't a clue about Russia, so at this time I have no comment other than to say I would rather invest in China, something I know and know well, than to put money into a country that I have never even visited. Given all the false press on China, I won't even to pretend that the U.S. press on Russia is accurate. So, I just don't know.
And now on to what I do know a bit about: bear markets. And all I can say, as I did last Friday, is watch out below! As of today, we had the big down day in banks I was looking for to give us a clue as to whether or not the banks (i.e., the BKX) were going to break support. Today banks fell nearly 10%, and that is as a sector, which tells me that banks are on very, very thin ice at the moment. If you remember, the BKX had 10-year closing support at 60, and 10-year intraday support at 54. Well, today banks tanked and the BKX landed at 50. This is the level I have been watching to determine whether or not I should proclaim that the banking sector was really breaking long-term support. After today's action and news, I am about certain that banks have further to fall. The only thing going for banks right now is the fact that the so-called "experts" are doubting that banks can fall any further. But if you look at history, I would say that if banks continue to fall from here (i.e., breach 50 on the BKX), that they can easily fall to 40. After that, 25-30 is completely possible. If the BKX drops to 30, banks will be down 75% from their high. That would be a total, bear market wipe out (pretty much what the homebuilders have experienced already...and noticed that ITB is hanging on at the moment). So, given the problems in the banking sector, and the fact it looks like the BKX is more likely than not breaking down below long-term support, I am just sitting back and watching for now. If the BKX is going to drop to 25, that means it will have to lose 50% (50%!!!) of its current value. So we are talking Citigroup (C) at $8.00, Bank of America (BAC) at $11.00, and Wachovia (W
possibly OUT OF BUSINESS! If this does play out, then you need to have some money ready to buy when the BKX gets near 30. Because if that happens, you can expect to hear me screaming "BUY"! Until then, just sit back and watch a while. If you contribute more money in this environment (i.e., right after the BKX breaks long-term support), you must be prepared to take endure some portfolio degradation for a while. Having said all that, I am not selling any of my KBE. I am done buying for now, and will buy more later if we do get a total blow out. After all, 10 years from now I will be shocked if the KBE is not back to where I first started buying it, at around $42. But for now, the risk is to the downside. Breaking 10 years worth of support is nothing to play around with, so I am not buying any more until we get some direction on the banks or a really, really good deal.
Oh yeah, my comment on Wachovia above is for real. The BKX is down less than 60% from its all time high, but Wachovia is down over 80% from its all time high. In other words, the rest of the banks would have to drop another 50% from their current levels to catch up with Wachovia. Wachovia's stock price must be telling us something. Otherwise, why would it be down so much worse than the banking sector as a whole? As a matter of fact, today CNBC's Bob Pasani reported that two years ago Wachovia spent over $26 billion dollars to acquire Golden West, but as of this morning Wachovia was only worth $21 billion. Is that normal?
Could Wachovia be the next IndyMac? We will no more later. Until then, Happy Investing (and be glad that your bank deposits are FDIC-insured)!
Gregory
GG - We got quite a bump up these past two days. I was really starting to sweat some of my recent financial plays as having been too risky, but that's more my style. Now, as always, wishing I'd put more in as they slid so that I could reap even more today. Don't think this rally will last past this week though, do you?
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Yesterday had "dead cat bounce" written all over it. I mentioned to my dad last night that today I wouldn't be surprised if we rallied back to 60 on BKX and then stalled out. Seems that is exactly what happened.
If we can remain above 60, then we could very well have seen our bottom since we weren't below it for more than two weeks. But I am not counting on that. I also didn't buy when BKX was 46.5 on Tuesday morning because when something breaks support it usually moves down fast. I am just planning to sit back and watch the show for a while. Just don't let rationality take the back seat to excitement. The volitilty is going to remain for a while in banks, and we will have a front row seat to watch the bulls and bears hammer this thing out! But if the bears do win this battle, I still say BKX can drop to 25-30 in the blink of an eye. If that happens, don't worry about what you already own because they will come back to these levels in a few years. You should be more worried about keeping some powder dry in case the buying opportunity of the century comes along if the BKX does drop to 30!
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Also, I heard on CNBC this morning that the 1800's were England's time as the center of the world's commerce, the 1900's were the US's time, and the 2000's will be the "SinoCentury", they said.
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Hi Danny, I heard the same thing. If I can make this blog a hit, maybe some big company will come along and want to buy me out! How does "SinoCentury Investment Group" sound?
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