Making Predictions (Still A Dumb Idea)
Just about the time I got done reassuring a group of friends I am traveling with that the current pullback in the stock market would likely continue to be orderly, the powers-that-be in Ireland went and made my prognostication look downright silly. Instead of what I foresaw as another day of relatively “tame” corrective action thanks to another rough outing in Shanghai, the S&P wound up falling for a fourth straight session and suffered its biggest one- day decline since early August in the process.
And this, dear readers is why I generally try my darndest to avoid making predictions about the stock market. While I know full well that Ms. Market will go out of her way to make you appear foolish at every turn when attempting such an endeavor, apparently I let my ego get in the way of my brain yesterday morning and went ahead with my “it’s no big deal” comments in public.
The thinking behind my ill-advised prognostication, was that Ireland was likely to be bailed out by the EU (the EU had effectively said as much recently), ditto for Portugal, and then I didn’t feel that China was likely to cut off its nose to spite its face with a long rate-hike campaign. However, I hadn’t counted on Ireland deciding that it didn’t want to play the bailout game.
It turns out that although the EU seems to be ready and willing to provide a bailout package in the range of 80 to 100 billion euro’s, Ireland isn’t quite ready to admit they have a problem. Sources indicate that Ireland believes only their banks have issues – but not the country itself. Thus the contagion game was restarted in earnest yesterday as traders recalled that Greece also refused to formally ask for help right up until the last second.
So, with the Chinese market getting hammered on worries about “liquidity driven inflation” (i.e. banks lending too much money at low rates for real estate over the past few years) and the bears yammering on about the revenge of the PIGI’s, traders decided they had seen enough and rushed to the exits on Tuesday.
The extent of the damage is largely a matter of one’s chosen time frame. The words “panic selling” could be heard being used by the short-term, fast money crowd due to the fact that the S&P and DJIA indices broke down below those all-important moving averages everyone likes to talk about. However, those with an intermediate-term perspective are quick to point out that even with the recent 7-day dive; the Dow is still up more than 1,000 points since the beginning of September.
So, what’s my prediction for how low the Dow can go during this “bad news panic?” Sorry, but since my crystal ball is still in the shop, I think I’ll stick with trying to idendify the drivers of the market movements and to manage the risk along the way.
Turning to this morning… Stock futures are moving modestly higher at the moment and are tracking a rebound in European markets. The developments on the Irish debt situation are being closely watched, with a joint EU-IMF team expected to visit Ireland to prepare for a bailout
On the economic front… We will get the CPI report at 8:30 am.
Finally, don’t forget to check the happiness box today…
David D. Moenning
Editor: Top Guns Trader
