October 2008 Preview
This report was due out at the start of the week but with the many goings on in the market, I just had to hold off saying anything too soon. As of this morning, everything is coming to pass and to begin this report … it’s not looking pretty.
I mentioned earlier in September that the last month of Q3 (Sep) always closes badly and it really got flushed down the toilet, didn’t it? Also, my downside projection of 9′500 for the DOW is all of a sudden, looking very likely. And now, things have gotten from bad to worse.
Let’s begin with October’s usual patterns … firstly, the anniversaries of all the Black Friday’s/Mondays in history, lower volumes in the first two weeks, the most volatile earnings season of all the 4 seasons and the possibility of a start to a bull run – the failure of which will turn into a terrible bear run (like last year). And already, after only 2 days into Q4, it’s not looking very nice …
Yesterday’s tanker, believe it or not, was not because of the impending “vote” …
… it was actually a leading indicator of earnings that sent the market down – Transports. Traditionally, America loves leadership from Housing, Financials and Transports. With the Financials and Housing taking a beating (although housing has been coming back lately), Transports have been a last bastion of strength for the U.S. market. That all blew up yesterday when earnings were revealed and companies began issuing warnings. Transports took its third biggest dive in its history yesterday and more downside is expected. This will not bode well for an already distressed economy with no leadership.
But there’s more bad news to come …
Non-Farm Payrolls and Factory Orders today are expected to be bad. But what the market will be watching is “how bad” after bad it will be. I cannot but suspect that it is going to be really bad – a lot worse than expected.
Then let’s throw in the big cruncher – Quarter 4 Earnings Season – which begins next week with Alcoa (AA) on Tuesday 7 October. The broad based and common sense opinion is that the majority of earnings is going to be worse than expected and revenues will be down. Going forward, some of the bigger players have already issued warnings and that is also not going to bode well for the market.
Add to that bearish sentiment the HUGE possibility that the Vote won’t pass. Many of the congressmen and women who have been voting “No” are not about to change their vote and the general consensus is that the few who voted “Yes” are going to change their vote. In the words of Nancy Pelosi (Speaker of the House), “The legislation has failed.” In my opinion, politicians should never be allowed to vote on national financial issues.
Oil has tanked for three straight days and Gold has dipped to a double bottom just like Oil has so if that holds, this temporary divergence will end and something has to give. Japan has already hit recessionary status after U.K..
10 year and 30 year bond yields against the 2 year are 200bps and 252bps respectively – that is getting scarily steep and this (pattern-wise) usually means a rally on the longer term bonds for a flight to safety in the shorter term options. 4.41 on the 30yr yield in Sep 23 was the peak and a bond rally is due which will send yields down for a bit.
With Santa missing Wall Street twice in the last two years, many traders are hoping that the third time will be a charm … I’m not holding my breath.
Two years ago, I mentioned that the Financial Capital of the world will change in the next 5 years. It’s been only two years and already the signs are rather obvious. This might also be the catalyst for what I envisioned … a world without credit cards where the mobile phone become the next line of credit and Telcos become the next big Financial Institutions.
Moving away from the U.S. and coming back to our local shores … it’s rather ironic but it would seem that Trading and Investing has become the least risky investment avenue as compared to retailed financial products and insurance. Anybody want an education in the financial market? 
)
Quick note on the DOW … more downside – long term support at 9,410 by Mid Jan 2009 with immediate supports at 10,215 and 10,050.
Sectors to watch; Household Products & Furnishing, HomeImprovement Stores, Home Builders, Consumer Products and Services, Processed and Packaged Goods.
Happy Hunting!
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