Wednesday, October 29, 2008

Black Hole Discovered on Wall Street

Top Line: The final ten minutes of trading on Wednesday found the stock market succumbing to a breathtaking 450 point selloff. This instability is what keeps most sane people out of the market.

The wild volatility in the stock market never seems to stop. Wednesday's rate cut provided no new news but did bring some interesting trading for a half hour. After that was over, the market marched higher until the final ten minutes of trading. With ten minutes to go, the Dow was up about 300 points. It finished down about 75 after being down about 150 just a minute or two earlier.

There was a rumor floating around that GE's CEO made some offhand comments about next year's earnings which was taken to mean something bad for the future. CNBC, a division of GE, tried to downplay this rumor. It doesn't really matter because the market can only do what it will do regardless of the news. With that, let's get back to the market...

The significant move today was in the dollar which dropped hard, finally. We said the dollar had gotten ahead of itself and suggested that it would take a break. Any pullback in the dollar could give a boost to the commodities and that's something that happened today. Gold stocks jumped on this dollar pullback. Over the past two days, the GDX has gone up about 25%. Yes, we're still down on our trade even after buying some around 17 the other day.

The action after the bell is probably more important than the Fed rate cut of 50bps this afternoon. The Asian markets are responding to rate cuts and are up incredible amounts tonight. Hong Kong cut rates and China cut rates. Another development has the Fed getting involved with some other countries. We don't have time to explain it but here is an article to provide you some information on the subject which is driving South Korea up tonight.

As we write, stocks in Korea are up 12.5%, Japan is up 8.5%, Hong Kong is up over 10%. These are unbelievable moves in world stock markets. This is what happens when stocks get oversold and liquidity is injected into the system. The money doesn't really have anywhere to go, so it goes into stock markets.

Futures here in the US are up but you have to remember and take into account that cliff dive at the end of the day. Thursday morning gives us the first GDP estimate for third quarter. Estimates are running at down a half a percent with more red ink expected in the fourth quarter.

Our target for the Dow was to be over 10K by the election. If we get something close to that over the next few days, we will probably be adjusting some of our positions. At this point, these volatile moves are giving us a headache.

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