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Note from the edge of the abyss

|Includes:BCE, SPDR Dow Jones Industrial Average ETF (DIA), GLD, PCH, PCL, RYN, SPY, SPY, TU
Here is my note to clients during the depths of today's US stock market plunge.
"I feel like someone took me out to my Western Red Cedar shed and beat me with a two by four….but this isn’t funny".
"The DJIA is down 930 points. It’s a free fall right now at 2:47 pm."
"Oil down $5, Gold up $30, TSX down 420".
"CME Lumber futures are limit down. July contract at $285.50 down $10".
"Did someone just figure out that Europe has had a few problems? Or is it they figure it's back to the 70’s for England?"
"I had a chance to go to any one of five top universities in England in the 70’s, but my father thought the British economy was so bad, he sent me to Canada instead"

"There ARE some good news for forest product companies and equities:
  1.  More companies announced good timber sales to Asia with China mentioned prominently today (Rayonier, Timberwest)
  2. The Canadian dollar is down 2.38 cents to 94.74. That should boost export revenues.
  3. Long term interest rates are down (US 10 year treasury at 3.49%, Canadian 10 year at 3.51%).
  4. March Canadian building permits were great, especially non-residential construction"
"In the meantime, here is my feeling:
This will be over soon. This is capitulation selling".

Postscript: We sold some commodity equities (PCL, PCH, RYN) and some other stocks in a profit position to raise cash (BCE, TU) around 11am due to the weak tape action, especially when the DJIA failed to hold at down 100 the second time.

We bought a few yield bearing stocks that were obviously on sale after the nadir  of the plunge and certainly didn't catch the bottom but that's the point. We sold a little Gold ETF which had popped to $118.30 (NYSEARCA:GLD).

My best guess is we will have a strong rally sometime next week (probably towards the end) after a few more volatile days.

We forecasted the Greek default fears, weak commodity markets and euro depreciation to 1.25 USD of the past week in our article "Greek Crisis Is High Noon for the Euro" written on March 21st.

My only surprise is this Panic didn't happen earlier. Thought the market would have punished Greece around April 20, the date of a big debt maturity. Nothing happenend. And then this, a trading glitch match sparked a roaring fire in a nervous, dry tinder market.

Panics usually last 10-20 days and the average index/average drop is around 10-20% which is quickly reversed. This is courtesy of the book "Panic Profits" by John Dennis Brown. 

Chris Damas

Disclosure: None