Yesterday someone declared that the stock market has hit a bottom “It’s going to be up from here.” The guy probably didn’t get his life boat seating assignment yet.
In the 1929 and 1987 stock crashes, there were tremendous surges in stock volume (there is nothing hard about picking them out on the following two graphs).
Double click for a larger image.
Friday saw close to 11.5 billion shares traded on the NYSE. It was high volume but not a triple of the normal volume. That’s what you need for a body count in a real panic (the far right side of the graph below is Friday's close).
The way the market gyrated within a range of 1,000 points leads one to conclude that the stock market is on life support. The day traders probably got creamed. At the market close, it looks as if “unknown market makers” bought everything that would have hit the fan. That means that the Fed gave some humongous loans to cover the "surplus purchased inventory." Everyone expected a sell off at the close. Friday's market makers wouldn’t normally want to carry a large amount of stock forward into next week. The Fed is renowned for its banking shenanigans and rule changes made on the weekends.
What we are looking at is a loss of faith in the economy. There is a lack of credibility. Our leaders claim everything is under control. The irritating thing is that they keep repeating it, after each new disaster. The graph below more or less shows a stock feeding frenzy that has gone hyperbolic on volume. There is nothing to worry about, Bernanke and Paulson have it under control. How come that doesn't calm my mind?
Let's face it, these graphs ought give a hedge fund manager spasms of the lower colon. Next week, look for a dramatic drop in the stock market. A tremendous surge in daily volume will indicate a temporary bottom. The only way to raise capital right now is to sell stock. The banks are not loaning money period. The mutual funds and IRA’s will be selling because of redemptions. The fund managers are in a catch 22. They want to buy into this panic, but they are forced to sell to raise cash for share holder demands.
After the volume surge, then comes a steady decline in trading and the slow slide down hill for 2 to 3 years. I think I’ll mosey on down to Wal-Mart and pick up a job application; there is no line--yet.
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