Business | Markets
Fear eclipses indicators in bottomless Wall Street
Predicting a bottom for the US stock market has been a thankless task in recent days, with indicators that typically signal the end of selling pressure yielding little help.
- Reuters
- Published: 00:02 October 13, 2008
New York : Predicting a bottom for the US stock market has been a thankless task in recent days, with indicators that typically signal the end of selling pressure yielding little help.
The three major US stock indexes are each down about 40 per cent for the year. But analysts said the bottom may be a long ways off as fear eclipses technical indicators.
After a precipitous eight-day slide for the broader market through Friday, there remained a growing discord among market technicians and analysts as to whether the market has seen its worst days or not.
In Friday's wildly volatile session, the Dow Jones average swung 1,000 points for the first time ever between its intraday high and low. The Dow briefly dropped below 8,000 for the first time since April 1, 2003, and then rallied over 300 points late in the day - only to give up those gains and close down 128 points at 8,451.19.
Volume was exceptionally heavy, with 2.95 billion shares changing hands on Friday on the New York Stock Exchange - the highest NYSE volume ever for a day that doesn't include the quarterly expiration of stock-index futures and options, according to a blog posting by Ray Pellecchia on NYSE Euronext's website. In comparison, last year's daily average was 1.90 billion shares.
In one sign of just how unsettled the stock market has become, investors clamoured for a coordinated interest-rate cut by the US Federal Reserve and other central banks. But when the central banks gave the market what it wanted, stock investors still were driven by a heightened sense of fear.
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Even though selling volume exploded, it is not providing clear-cut signals that the market is near some turning point or that the sellers will soon get exhausted, said Cleveland Rueckert, market analyst at Birinyi Associates Inc in Stamford, Connecticut.
"There's nothing that you can put a finger on and then say this one thing has changed, now you have the bottom," he said. "People are worried about earnings right now - the prospect of a deep recession. Nobody wants to own stocks."
Barometer
The Chicago Board Options Exchange Volatility Index (VIX), Wall Street's main barometer of investor fear, is at record highs - a move that investors have tended to take as affirming the basis for near-term bottoms.
The VIX shot up to an intraday record high at 76.94 on Friday, a jump of 20.4 per cent. The VIX closed at a record high of 69.95, up 9.4 per cent for the day.
Back in March, when Bear Stearns succumbed to the credit crisis, the prevailing view, guided by past experience, was that the market had probably seen a cataclysmic event that should mark the beginning of an end to the turmoil.
Indeed, several Wall Street watchers stuck their necks out to say the bottom had been hit then.
That was six months before a tumultuous September that rocked Wall Street and changed the landscape of US finance forever.
This time around, there seems to be a sense that the dynamics of the global credit crisis are making it harder to pin down a likely recovery point, according to traders and analysts.
The New York Stock Exchange's "Bullish Percent Index" is among key broad market indicators that have been traditionally looked at to judge market bottoms.
While its reading now shows record pessimism, there is hardly a sense that some investors might take it as an invitation to wade back into equities, said Bruce Zaro, chief technical strategist at Delta Global Advisors in Plymouth, Massa-chusetts.
"This market environment feels very different and certainly the mindset of the country has thought, 'Yes, this is very different because of the circumstance surrounding the credit crisis'," Zaro said.
According to the NYSE's "Bullish Percent Index," only 5 per cent of NYSE-listed stocks are trading at their technical "buy" signals above their 200-day moving averages - a record low.
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