Is the Worst Over? Let's Keep Our Options Open

Macro Man's a bit pressed for time today, so he'll confine today's effort to making two observations:

1) He's not sure exactly what explains yesterday's equity rally: Paulson's comments (yawn), hopes for groundbreaking policy initiatives at this weekend's G20 (good luck with that), or short gamma positions (possibly.)

But consider this: yesterday's intraday range of 11.6% in the SPX...

...was very nearly as much as the entire yearly range in 2005!!

While it might appear tempting to conclude that the worst is over - the SPX has once again resoundingly rejected the 800 level - Macro Man prefers to keep his options open. Yesterday's price action was rather similar to that observed on September 18, when the SPX made a new low and then surged higher to close at its highs. This was the day that Paulson announced what has become the TARP. Yeah, that worked out well.

2) On a lighter note, it looks as if global central bank liquidity programs are beginning to loosen up the market for poorly-performing, illiquid assets. How else to explain the advert below?

Comments

[bosun.j:]

Macro Man isn't sure exactly what explains yesterday's equity rally! Dude!

Three letters Macro Man: PPT!

2008 Nov 14 07:49 AM

[Roger Knights:]

Program trading probably kicked in once Dow 8000 was breached, and the strength of the upsurge triggered more program trading, etc. Sort of the inverse of 1987.

2008 Nov 14 07:58 AM

[Dr. O:]

"But consider this: yesterday's intraday range of 11.6% in the SPX......was very nearly as much as the entire yearly range in 2005!!"

Startling revelation. From a common sense point of view, this nearly unprecedented volatility should scare off anyone other than day traders. It's a sign of a market in the throes of severe illness, such as convulsive seizures.

FYI: check out my blog for important charts, and pithy observations. Minimal blather, lol.

2008 Nov 14 08:26 AM

[rsinvestor:]

bosun.j --
Absolutely program trading caused the 15 minute swoosh yesterday at 12:45. Everyone and their granny had stops at S&P 839 (intraday low on 10/10). Those got taken out without hesitation. Then, out of nowhere, short covering seems to be the driver for the 11% swing up. Once traders realized that the "short the support breach" wasn't working, volume continued higher on the up move.

2008 Nov 14 08:38 AM

[axelrod608:]

I love graphs. Especially the pretty colored ones. But these graphs don't even show the bottom. You need to show the DOW 7000 for that. Keep your seat belts fastened.

2008 Nov 14 11:44 AM

[JoeSixPack:]

Maybe it is related to the $684 trillion in derivatives (12x world GDP) tearing apart the financial system?

2008 Nov 14 12:05 PM

[guttersnipe:]

800 ish is a pretty significant point for the SPX. A break below this level would confirm a secular double top with pretty terrible implications for the future. This might be one reason for the dramatic bounce from this level. Let's hope it holds.

2008 Nov 15 02:51 PM