Wow, What a change in the market! Some volatility has returned and it looks as if we might break the S&P 500’s Remarkable Streak that I wrote about on February 2, 2007. At that point, the market was continuing to press higher without a two day correction of more than 2.5%. All day yesterday the markets continued to deteriorate being driven by several factors including, higher oil prices, a failed assassination attempt of Vice President Dick Cheney, and an 8.8% correction in the Chinese Shanghai Index because of fears of credit tightening.
Another notable man by the name of Alan Greenspan has also spooked the markets. It was largely overlooked yesterday because of a record private equity buyout, but while addressing the economic environment in China and the U.S., former Fed Chairman Alan Greenspan said that the markets are possibly heading to a recession in late 2007. He cited that “When you get this far away from a recession, invariably forces build up for the next recessions, and indeed we are beginning to see that sign”. One of the things he was referring to was profit margins, which look to have stabilized. It was what spooked the markets early, but as these alchemist continued to do their work in the afternoon, bad news was turned to good news.
Is this the correction that everyone has been talking about? Well, we won’t truly know that until a few weeks from now, but we do know that the streak has been broken. It had been since April 14th and 15th, 2005 when the market fell 11.74 and 19.44 points respectively for a total of 31.18 points or 2.67% since the market fell more than 2.5% in two consecutive days. Yesterday and today’s losses should about equal that loss and end the streak at 478 days. That is a pretty impressive streak; one that I compared to Roger Federer and Tiger Woods streaks respectively (by the way, Tiger Woods’ streak ended this past weekend with a loss in the World Match Play).
Not only is this breaking the consecutive two day streak, but the drop has actually turned the Dow Jones Industrial Average (DJIA) negative for the year while the S&P 500 continues to breakeven, respectively. I believe there will be some opportunities out there for traders to take advantage of the latest drop and make a little money.
So where do we go from here? Well, there are several things to take a look at. First, this could be just the beginning of a larger sell-off or this could be a one –day wonder that sent a herd-like selling effort before regaining footing and heading higher again. Nothing has really changed in the U.S. except for higher oil prices, but the sentiment has changed. Although the February consumer confidence came in at 112.5 this morning(the highest level since August 2001), this may reflect the amount of complacency in the market, which as it continues to grow it will only leave investors more vulnerable as they take on more and more risks in this type of environment. I guess we’ll see how this latest sell-off turns out.
***Please note that this article was written before the lunch hour yesterday, Feb. 27, 2007.
Parrot Trading Partners, LLC