Stock market moves sideways, but remains overbought

Weekly Review: MAAD, CPFL indicator analysis

Stock index, chart, technical analysis Stock index, chart, technical analysis

 

Market Snapshot:
 

Last

Week Chg

Week %Chg

S&P 500 Index

1460.15

+.08

0%

Dow Jones Industrials

13579.47

-13.38

-.10%

NASDAQ Composite

3179.96

-3.99

-.12%

Value Line Arithmetic Index

3119.14

-40.56

-1.28%

Minor Cycle (Short-term trend lasting days to a few weeks) Positive

Intermediate Cycle (Medium trend lasting weeks to several months) Positive

Major Cycle (Long-term trend lasting several months to years) Positive

Have you seen the 2011 film, “Margin Call”?

The award-winning movie covers a 36-hour period when quants (aka “rocket scientists’) at a major investment bank in New York City, probably Lehman Brothers, discover that the firm may be on the brink of failure. The firm is probably over leveraged in Mortgage-backed Securities, the toxic financial instruments widely believed to have caused the financial meltdown in 2007-08. After a series of frantic meetings, it is discovered that the MBS portfolios held by the firm had already exceeded pre-determined loss limits. It was then decided a “fire sale” of those assets must be conducted to save the firm even though the liquidation could mean the company and its traders would become Wall Street pariahs due to the damage they would cause.

Watching the movie that one reviewer called the “best film ever made about Wall Street,” the viewer is left with an impression of unavoidable inevitability. The powers-that-be at the firm could have ignored the problem and could have hoped for the best, but that course of action could have proven to be almost as disastrous as the plan they were compelled to invoke. At that stage did they really have any choices?

What we were struck most by was the delaying factor. Several of the characters, probably mimicking real life upon which the movie was based, saw the problem unfolding beforehand. Yet their objections were muted and half-hearted. Why? Because the market was still favorable. Nonetheless, they were warned and did nothing but give token lip service to a potential financial tsunami that was gathering momentum each day. They did not act. Of course there are parallels that can be drawn from earlier financial catastrophes. Think 1929, 1987, 2007. What about lingering weakness in the current economic environment? Or with interest rates, is it possible to keep yields near zero indefinitely?

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