Another Down Day

Top Line: Well, the stock market decided to head on down into the 12,500's on Tuesday with only a mild up move in the morning to follow through on Monday's late day bounce. Here is where it gets a little dicey. We have long said that sharp downturns come when stocks have been selling off for a while and buyers disappear. The stage is set, again, for a very sharp drop after Tuesday's unexpected down move. When stocks drop when there seems to be some notion that they should rally, that gives rise to additional fear.

There were several news items to drive the market down. Let's start with the one that Seems to be the biggie. This afternoon, the CEO of AT&T said that it had cut off service to subscribers in the fourth quarter. According to the WSJ he blamed the weak economy for customers not paying their bills. These words seemed to have some traction with the market as it went down right after that. It's almost like the market was worried that it might be true but when someone actually says it, then it must be true. We've added the WSJ's link and hope that you can view it.

There had been other news earlier in the day which caused little in the way of selling. The news was considered bullish because it may help the Fed to lower rates that nice 50 bps the market wants. Please. The first was the news from KB Homes, not very good. KBH posted a net loss of almost $10 per share about nine times more than analysts predicted. The stock put in a six year low as it dropped nearly 10% on the news. This stock has traded around 56 this year and today closed under 17. The company has been viewed as one that can withstand the current downturn. Oops, check that. The WSJ will have this news on Page One on Wednesday.

To continue, Countrywide Financial, a company that has been in these posts many times in the past year, got thumped hard today. Investors are leaving this stock in droves as CFC dropped nearly 30% on Tuesday. Yes, 30%. [We can't help but think about how well those 20 call options that we heard about on the bus last fall are doing.] The news was that they had fabricated documents to require someone coming out of bankruptcy to pay back payments. You gotta read this article. (The article is written by Gretchen Morgenson who is an author we think gets a lot of things right.) Read the first three paragraphs and see why investors are getting cold feet. Of course there was the rumor that CFC was going to file for bankruptcy itself which didn't instill confidence. The company halted trading for 15 minutes to announce that it had no plans to file--which stemmed the selling tide for about a half hour before really selling into the close.

One other news item hit the market early was the news on pending home sales index which was down, down 2.6% in November to a low below the September 2001 figure.

An opinion editorial in the Financial Times written by another one of our favorite writers, Stephen Roach, mentions the inflated assets in the US and how they must go down, including the word bubble in his comments.

Last but not least is another one of our favorite financial celebs, who has also tried his hand at writing, Bill Gross of PIMCO. Mr. Gross wasn't writing today, but was speaking on the danger of credit default swaps (CDS). We haven't discussed CDS's much here but given they are the place where the next round of this credit crisis may be, we may need to start talking about them. This is an important topic.

All in all, a very pessimistic day on the Street. With that you may think the over night futures would be down but that is just not the case this evening. We see buying coming in this evening and that indicates No Fear among the investors/speculators.

Right now all of the major indexes we follow are sitting right around the August lows or at least below their November lows. If the market is Not going to fall out of bed right now, then it needs to bounce right now. Even then, we don't see a bounce as more than a small move. Any bounce we have seen recently has been sold hard. Oversold or not, this selling is strong.

FSI: 95.87 (Our low for this index was back on November 12th at 93.75)