Saturday, October 18, 2008

Stock markets bottomed.

Last week we saw huge global rally on Monday. But next two days the gain was almost wiped out. And on Thursday again buying interest sent stock significantly higher. Nevertheless the last low is higher than the previous low I don't see this as a strong signal to say we have bottomed. We are talking just about three days when the formation has been created. I need to see higher low in coming weeks.

Volatility index VIX (^VIX) reached new highs when crossed above 80 and closed on Friday at 70. This level of volatility has not been seen in two decades. Last time VIX passed this level on October 1987. You can check out trend of CBOE Volatility Index.

I am becoming more bullish in short term horizon. All these fears about recession and financial crisis are already priced in the shares. No surprise if US economy will contracts and fell into the recession. Another important point, there is no more "Lehman Bros case". I am not saying that there is not possibility of other financial company goes bankruptcy. I simply don't expect US or European governments to let big financial company failure.

Comments

3 Responses to "Stock markets bottomed."

TopForeignStocks said... October 19, 2008 at 3:18 AM

Vlada
I agree that there will be a short term bounce in the markets. But I think the S&P 500 will go down even more before truly bottoming.Currently there is too much pessimism among ordinary folks who see their portfolios in deep red.Next 2 months the retail story will be making headlines due to the holiday season here.While the governments may not allow a big company to collapse, there are plenty of small to medium ones in the US that need capital infusion.

Seems like the US will follow the steps of Britain and buy stakes directly in banks.We shall see how things go in the next few weeks.

-David

CSJ said... October 19, 2008 at 9:08 AM

Hi,

I also think the bounce now is a short term event.

Credit default swaps is what will cause another collapse.

Market is definitely oversold and the recent volatility and consolidation at 8,500 suggests a floor but there is still much more de-leverage to go.

Vlada, Czech Republic said... October 19, 2008 at 10:47 AM

Thanks guys for your comments. Yes I agree retail story will be bad. But is there anybody who expects to be good? Recent sell-off has started with Lehman case that nobody expected to go bankruptcy. Or at least broad opinion was like that. If I look at back to last 52 weeks all sell-offs has been triggered by unexpected events.