The Long Crisis

Posts Tagged ‘bear market’

For the last several weeks we’ve been very concerned that all the major indexes are in “thin air” and have exceeded some key Fibonacci retracement levels. But certainly, the poor price action over the past few days, with the Dow closing Friday at 10120. 26, down 115. 75 points, is a strong indication that the concerns are justified.

This new short video explores that and looks at a key Japanese candlestick formation that could really make a difference and be the first clue in the demise of the Dow. The fact that early in the trading day the Dow rallied over 100 points on news that GDP for the fourth quarter of 2009 expanded at a 5.7% rate and then reversed in the afternoon to finish about 53 points lower is certainly bearish price action.

In the video I’ll also show and share with you a specific number to look for in February. Should this level be broken, then it will signal a major reversal to the downside for the Dow. We are not talking about a minor correction here, but a complete trend reversal, one that will be very violent and catch many traders by surprise.

Watch the video you see if it all makes sense to you. As always our videos are free to watch and there is no need to register. Bear Market Wave 3 Video Enjoy the video and let us know what you think on our blog.

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Just how accurate could the Fed’s bank stress tests be? A story in today’s Wall Street Journal states that banks won concessions on tests. In the end the Fed cut billions off some initial capital shortfall estimates. The procedure was at times heated; tempers are reported to have flared at Wells Fargo.

Following two weeks of intense bargaining the Federal Reserve significantly scaled back the size of the capital deficit facing some of the nation’s biggest banks shortly before concluding its stress tests. The delay from Monday to Thursday before releasing the test results was caused by last minute negotiations between the Fed and several banks.

In addition, according to bank and government officials, the Fed used a different measurement of bank capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits. As a result, some analysis feel that the government indeed was painting a pretty face on a pig, including a generous amount of lipstick.

The Fed rejected some of the banks numbers but ultimately accepted some of the banks’ pleas. According to some sources shortly before the test results were unveiled Thursday, the capital shortfalls at some banks shrank, in some cases dramatically.

For example, Bank of America’s final gap was $33.9 billion, down from an earlier estimate of more than $50 billion, according to a person familiar with the negotiations.

According to Gerard Cassidy, an analyst with RBC Capital Markets, the 19 banks’ cumulative shortfall would have been more than $68 billion deeper if the government had used a better-known metric called tangible common equity, which accounts for unrealized losses, rather than Tier 1 common capital.

So as an investor how should one react to the run up in the bank stocks over the past few weeks? With the financials leading the way the stock market has rallied well over 35% in just nine weeks without a significant setback. To me the move looks highly artificial as if it has been based on some carefully managed news and PR releases from the Fed and others. Certainly, the market has acted like happy risk appetite days are here again or soon will be.

I strongly expect that the rally is a sharp rally in a bear market and is now over extended. With so many investors now confident of a V shaped recovery that likely is only wishful thinking, even without the stress test’s results and procedures open to question, a bone jarring renewed panic sell off is probably going to occur within a week or two.

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