A Wave of Selling Engulfs the Markets

[Excerpted from Bill Cara's Daily Report]

Monday opened in North America with a thud as a wave of sellingengulfed the market for the first two hours as equity prices dropped tomajor support levels of S&P 920 and DJIA 8600. Although the levelsremained stable thereafter, and commodity prices started catching bidsat 12 noon ET, the final result was a serious blow to the Bulls, as all30 DJIA components and 99 of 100 Cara 100 stocks closed down on thesession.

The weakening of certain economic data, particularly in Europe, resulted in a decline in the Euro and rally in the $USD. That put downward pressure on commodity markets and equity markets, which were led down by energy and metals in Europe, which selling then continued across the pond.

By the close, portfolio managers were no longer talking about end-of-quarter window dressing that might save their jobs, but on whether or not technical support levels would hold. At the bell, the DJIA (8,612.13 -187.13 -2.13%), S&P 500 (923.72 -22.49 -2.38%) and NASDAQ Composite (1,816.38 -42.42 -2.28%) were all down over two percent. At least the damage was done at the open and was not as bad as suffered in Europe.

The Toronto Composite (10,394.78 -250.18 -2.35%) and Toronto Venture Board (1,132.95 -21.86 -1.89%) both followed the other markets south, which in the case of Canada, a commodities producer, was expected.

Earlier Tuesday, equity weak in Austral-Asian markets except India. Japan’s Nikkei 225 (9,752.9 -2.86%), Hong Kong (18,165.5 -1.80%), Shanghai (2,776.0 -0.48%), and Aussie All Ordinaries (3,957.9 -1.80%) were well down, while India’s BSE 30 (14,957.9 +0.55%) closed higher.

In mid-day trading, the European equity bourses had turned north, although the gains were not large. The French CAC (3,238.1 7:56AM ET +0.57%), German DAX (4,912.2 7:41AM ET +0.46%) and UK FTSE 100 (4,357.1 7:41AM ET +0.72%) were making a rebound attempt after the previous day’s smashing.

In US trading Monday, all sectors were lower, while Technology (XLK -1.0%) was best. Basic Materials (XLB -3.4%) and Healthcare (XLV -3.1%) and Industrials (XLI -3.1%) were particularly weak.

The was no standout industry, and with the strong $USD it was expected that Goldminers ($XAU -3.6%) would be down. REITs ($DJR -5.3%) were weakest. The $XAU has dropped -6.7% over two days.

There was a single Cara 100 company stock that lifted, which was Best Buy (BBY +0.3%). There were some big hits in commodity-related stocks, like Silver Wheaton (SLW -8.0%), some banks like Deutsche Bank (DB -7.5%), and stocks of higher-risk emerging nations, like India’s Tata Motors, Brazil’s Gerdau Steel, and Russia’s Vimpel-Communications (TTM-6.9%, GGB-6.4%, VIP-6.3%).

The $USD rallied sharply again Monday1.18 +0.95 +1.18%) and so did the Yen against the USD (102.20 +0.60 +0.59%), which was a sign that risk was being sold, traders being nervous. The other major currencies dropped sharply against the USD, including the Euro (137.93 -2.24 -1.60%), British Pound (102.20 +0.60 +0.59%), and Cdn Dollar (88.28 -0.92 -1.03%).

In active US bond market trading, the US Treasuries followed through the prior two day’s gains. The US long Bond lifted ($USB 116.62 +0.84 +0.73%). The yields for 30-year (4.555 -0.78 -1.68%), 10-year (3.713 -0.75 -1.98%), and 5-year (2.720 -0.65 -2.33%) sank for the third straight day, after the World Bank on Thursday forecasted a deeper -3.0% global economic contraction for 2009 versus the earlier -1.7% prediction..

Treasury bill yields were weaker again (0.155 -0.10 -6.06%) as traders continued to park cash.

On Thursday we bought the bonds (TLT), figuring this counter-trend action would happen.

On Monday, $GOLD closed down -$11.00/oz (928.20 -1.17%). With the European economic data looking worse than expected, gold closed last week weakly (939.20 -15.30 -1.60%), and this loss adds to doubts of the goldbugs. But we are writing puts (a bullish tactic) and cautiously looking for opportunities to acquire real asset-based equity prices at a discount.

Crude Oil (72.75 -0.73 -0.99%) also took a hit after rallying on Thursday.

The spot (cash) market prices for precious metals this morning were modestly higher, as follows:

• Gold (936.18 +5.08 +0.55% 07:58am ET);
• Palladium (245.5 +1.5 +0.61% 07:57am ET);
• Platinum (1224.5 +7.5 +0.62% 07:56am ET); and
• Silver (14.345 +0.175 +1.24% 07:58am ET).

Prices in the precious metals began to improve after noon on Monday.

Dollar futures were up down Monday morning, while the Euro was trying to rebound (1.3891 +0.0116 +0.84% 07:45am ET).

Crude Oil futures were also down on the day (71.31 -1.44 -1.98%), but earlier this morning look to be improving (72.00 +1.38 +1.94% 07:43am ET).

US equity futures for the DJIA were quiet earlier today (8630 +11 +0.13% 07:45am ET).

Comments

[Mad Hedge F...:]

Cash in your chips. It looks like the worm has finally turned. Hedge funds that rushed headlong into piling on new risk positions as recently as last Friday are now unwinding them today just as fast. All last week the smart money was selling to the late comers, newbies, and wanabees. The Viagra is starting to wear off. It’s time to take short term trading profits on crude (USO), commodities (DJP), all stocks (SPX), emerging markets (EEM), short Treasury bonds (TBT), all currencies (FXE), and junk bonds (JNK, HYG). I love all these things long term, but suffer from a short term tolerance for paid. When the best case scenario is sideways, I’m outa there. Look for decent bounces in risk reducing positions like the dollar ($USD), short dated Treasury securities (CSJ), and defensive sectors like utilities (IDU). It has been obvious to me that all of the good, long term holds were rolling over on shrinking volumes right at 50 or 200 day moving averages, since last month (see “Sell in May and Go Away” at www.madhedgefundtrader...).

Jun 16 02:13 PM