Stock market plunge shows no sign of stopping just yet
Posted on 09 August 2011 with no comments from readers
After the worst day for global stock markets since December 2008 there is no sign of a halt to the selling today with stock futures pointing to an even lower opening and few bargain hunters are to be seen.
Even the Fed is thought too worried by the crash to intervene for fear that its intervention might fail or encourage investors to think things are even worse than they are being told.
Catch 22
It’s Catch 22, damed if they do, damned if they don’t. But do not try to catch a falling knife. One of the best investments yesterday was the ArabianMoney portfolio of short ETFs, up more than 20 per cent in the mayhem (subscribe here to get this portfolio).
We are quite certain that there will be a technical rebound from the selling but it may well take a few days before the market finds a level that it is comfortable without US debt at triple-A.
On the other hand, after the technical bounce what next? This is something often called a dead-cat bouce because apparently if you throw a cat out of a high window it will eventually bounce off the pavement.
Not an explanation we would repeat in the presence of the ArabianMoney cat who is very agile and generally keeps out of trouble as do stock markets.
But then the higher you climb the harder you fall. This website has been pointing out for more than a year now that US stocks look way overvalued for the economic prospects.
Recession coming
Why is it only now that the market wakes up and does not like the recession it sees starring it in the face? We also have peak profits and the adjusted cyclical price-to-earnings ratio was 21 before this crisis struck, that was 30 per cent above the mean, and now we should overshoot to the downside in the correction.
By the end of today the S&P 500 will be officially in a bear market. We think this bear market is going to last quite some time and as far as the market downturn is concerned you ain’t seen nothing yet.
Just sell stocks and buy short positions. If you are nimble and agile like our cat you do not need to jump out of the window to experience the inevitable bounce.
Our other favorite gold is trading above the $1,764 level at which Jim Sinclair predicted the price will go parabolic (click here). Silver will shortly follow.
