Saturday, October 1, 2011

If you cannot save it, dump it

Chart: S&P 500 Heatmap 2011-09-30;

Nobody was willing to window dress on the last day of September. S&P500 index felt 2.5% on Friday. Futures were down even more - 3.13%. S&P500 is down 7.2% for September and 14.3% for the quarter.

Maybe I'm too optimistic, but I'd assume that at least some money managers decided that if they couldn't improve their quarterly numbers it might be better for them to sink even more to lower the baseline for the next quarter.

Many investors believe that S&P500 currently is at the critical technical level and either it will defend it or sharply go down. Some of the most pessimistic analysts even see the 400 level...

Definitely there are reasons to worry about the prospects of the global economy and hence stock prices. As mentioned in the previous posts, investors are highly divided, which leads to high volatility.

Two key factors affect the markets: dragging crisis in Europe and fears about the economy. Since we shouldn't expect resolutions to these problems soon, the volatility will most probably continue. More panic sell outs are likely.

Nevertheless, I'd not expect the Greek crisis to transform into another Lehman crash, even if Greece defaults. The Greek debt is much smaller than Lehman's assets, it has different characteristic, and the parties involved had plenty of time to prepare.

In the meantime, the economic data are mixed, with weak confidence readings overshadowing some signals of slow improvements.

On October 11th, the Q3 earning season begins. The company earnings may be a little better than expected.  Provided that none catastrophic event materializes, there is a chance markets will raise. Although I'd not aim at the 1450 level at the end of the year as some analysts...

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