What a ride! The market has been moving to different levels of red. Recession fears are looming over and around the market and are keeping it in a perpetual state of flux. Of course, the market is always moving. But certain days are wild rides, like a swirling snowflake in a blizzard or a flying leaf in a tornado. No natural occurrence is responsible for the market’s ride. Instead, rising recession fears and an emergency Fed meeting led to the market’s turbulent motion. And this ride was felt throughout the world. Let’s take a look at the global markets.
The Asian markets plummeted on Tuesday, January 22, 2008. Today’s fall was pretty painful. The Hang Seng was the biggest loser in the region, trading down 8.6 percent. India’s BSE Sensex fell 7.4 percent, but was down as much as 11 percent. Trading was halted on the index to prevent a major market collapse. The Nikkei also traded strongly in the red on Tuesday, January 22nd. Japan’s index lost 5.6 percent. China’s Shanghai index made its usual big price movements, but it was trading in the negative like the rest of the indexes in the region. The Shanghai index lost 5.1 percent. Yes, it was a day of high volatility and large losses on the Asian continent. Notably, the week started out with the Asian indexes experiencing large losses. Tuesday was simply a continuation of this bearish price movement. On Monday, January 21st, Hong Kong and Singapore lost 5 percent followed closely by the Nikkei, which lost 4 percent. Recession fears from the US are blamed as the catalyst for the fall of the Asian markets.
The European markets experienced much of the same price movement as the Asian markets. On Monday, January 21st, the European markets experienced the biggest single-day losses since September 11, 2001. Tuesday, January 22nd opened with European shares trading in the red. But the market changed for the most part. The European Big Four group, which looked like it would take another dive, experienced a mixed closing. Most notably, London’s FTSE gained 2.9 percent after a triple-digit loss on the previous trading day. France’s CAC also closed in the black with a 2.1 percent gain by the market close. The losers of the group were Germany’s DAX and Switzerland’s SM index, which lost 0.3 percent and 1.7 percent, respectively. The financial and banking sectors were both the enemy and savior for the European indexes.
The US markets are strong, but struggling. They are clearly losing the battle to stay above key support levels. The Dow ($INDU) has now left 13K territory, but it barely hanging onto 12K territory. The NASDAQ ($COMPQ) made the biggest leaps downward with double-digit losses. Not to be outdone, the S & P 500 ($SPX) does not have 1500 anywhere in its sights. The Fed’s early meeting on interest rates might have been a double-edged sword in the fight against recession. The stock market is clearly recovering following the decision. Yet the US Dollar is wounded after being cut by the Fed. If a recession is averted, then the double-edged sword of interest rate cuts will have proved effective to save the economy and avoid a recession. Going into the final two hours of trading, the Dow has fallen down 178 points. More is happening in the market so let’s turn to the economic reports though this surprisingly early Fed decision will be a hard act to follow.
Economic Reports
More accurately, I should say “economic report.” There is very little economic data coming this week. In fact, this was slated to be one of the slowest data weeks in a very long time, but the Fed snatched away that distinction! Still, the single important report coming is a big market mover so it should not be ignored.
The Existing Home Sales report is a big market mover and a strong indication of the state of the US housing market. Uh oh! Eighty percent of new homes sold every month is a previously-owned home so this report will accurately show whether the housing market is alive and booming or…not. This report measures the number of previously-owned single-family homes sold every month. It is arguably the most important report released on the housing market. Beyond serving as a measure for the housing market, it also serves as an indication of the health and growth of the economy as a whole. Existing home sales are a strong stimulus for many other types of economic activity. The Existing Home Sales Report is expected to show a decline from 5.0 million homes sold in November to 4.94 million homes sold in December. Admittedly, December is not the strongest time for home sales, but this news could make an impact in light of other economic data. The bond market could react positively to this declining figure because it does indicate that the economy is slowing down. The stock market prefers a higher figure because it would indicate growth in other sectors of the economy. The US Dollar would show anxiety over a declining figure because it might indicate that the economy is slowing down, which would encourage the Fed to lower interest rates. However, since this has already happened, the Dollar probably won’t be significantly impacted.
Next week, which will be the final week of January, will be busy. Heavy-hitting reports like the New Home Sales and Durable Goods Orders reports will be released on January 28th and January 29th, respectively. The Employment Cost Index for the fourth quarter will be released on January 31st. As a strong indicator for inflation, this report could cause market movement. Finally, on Friday, February 1st, two of the biggest market movers of the month will be released. The Nonfarm Payrolls report and ISM Manufacturing Survey will kickoff the month of February. These reports are likely to affect the bond, stock, and currency markets in big ways.
Let’s take a quick look at the company news…we have a merger that seems exciting.
Company News
The Dow opened on Tuesday, January 22nd with a triple-digit loss, which was prepared to go further downward. The Fed’s meeting and decision halted (or delayed) the Dow’s downward spiral. It also helped the European Big Four group. Unfortunately, the Asian indexes had already closed, but we can see more of the impact of the Fed’s decision in a few hours time, when the Asian markets reopen. As for now, going into the final hour of the trading day, the Dow is trading down 130 points (or 1.1 percent), which is an improvement over the past 60 minutes. Let’s see where the final witching hour takes us.
Surprise, there is other news happening in the market. This is one of my favorite kinds of news stories: a merger. Last week, the NYSE EuroNext (NYX) Exchange announced that it would purchase the American Stock Exchange for $260 million in stock. The deal is expected to provide greater transparency and access to the growing Exchange Traded Fund [ETF] market.
Figure 1: NYSE EuroNext Daily Chart. The NYSE announced that it will purchase the Amex. The share price does not appeal to the bulls. It is meeting strong resistance by the 20-day moving average (blue) line while the lower Bollinger Band (pink) is showing strong support. The company has traded up and down on Tuesday, January 22nd, but is showing a 0.5 percent gain in the final hour.
To close, a big mover bucking the trend on Tuesday, January 22nd was the NASDAQ Stock Market, Inc. (NDAQ). The NASDAQ was the largest US stock exchange by volume in 2007. Its volume rose from 331 billion shares traded in 2006 to 442 shares in 2007. Shares of NASDAQ gained more than 6 percent.
Figure 2: NASDAQ Stock Market, Inc. Daily Chart. The share price is not only bucking the market trend, but it’s also bucking its own trend on Tuesday, January 22nd. The share price was showing a strong upward trend, but was hit by a bearish gap from which it has yet to recover. Perhaps it is recovering today as the share price gained more than 6 percent.
What a market whirlwind! Try to keep your trading hat on and stay focused on the horizon.
Market Moves Wisdom of the Week
Expect the unexpected! I know it’s a cliché. The market is full of surprises and we expect surprises. But who is really prepared for a surprise? Who is ready for a sudden reversal? Who is positioned for profits despite what happens in the market? Very few traders can answer these questions affirmatively, even among experienced traders. So the Market Moves Wisdom of the Week is to see into the future to prepare yourself and your trades for market surprises. Remember your stop loss orders, hedge trades, and other risk management tools. Taking these simple steps on every trade might just cause you to be surprised at your profits!
Robin Lofton
Staff Writer and Trading Strategist
ProfitStrategies.com
