Top Line: After a 205 point Dow drop, that index has fallen about one thousand points in about a month. While this sounds like a lot, we don't really think the downside pressure has caused much fear at all which would mean there should be a little more downside to go. Still, bounces, possibly sharp, can occur at any time.
The main event on Wednesday is the action in the Dow Transportation average. We seem to hear that the high price of oil pushes stocks down, which isn't exactly true as we've pointed out several times here, but if it was true you might surmise that the index that would be mostly affected by higher oil would be the Transports. Back on May 19th, that average made an all time high price level as oil was moving to all time highs as well. All that aside, today the Transports dropped over 4% and are down about 10% from that May 19th high.
As we examine the fear factor in the market, we see that there is some but not nearly enough to consider this down move complete. We are speaking mostly of the volatility indexes, the VIX in particular although the VXO is equally as sanguine. Yes, they are both up but only to the mid-20s and we expect a push to about 50 or more before we see a really good buying opportunity.
The Asian markets are having more difficulty this evening, too, with the Chinese market down another 3% again tonight with Hong Kong and Japan down about 2%. This is after wide losses last night, China was down about 7% last night.
We would like to go back to last night's post when we were discussing the rate hikes the Fed is contemplating. We are particularly surprised by Bernanke's announcement that he wants to be an inflation fighter and support the dollar. He has proved to us over and over and over again, hum a few bars with me, that he's only concerned about the banks. But, now, he's all about the inflation story that the main stream media is talking about.
It's almost like he has set us up for a problem that he and his merry men at the Fed can't deal with directly the way they normally do, in lowering the fed funds rate. Effectively, the Fed has now taken a position that the next move in rates will be up. To us this leaves a little hole that the market won't be able to have filled by the Fed. This could be an issue and may cause some deterioration in prices.
FSI: 90.80 (not holding very well)
Jackson is holding very well even though the FSI isn't...