Friday was the 25 anniversary of Black Monday, the day the stock market went into a free fall, losing more than 22% in a single trading session. The market weakness began on Thursday, Oct. 15, that year and then lost 108 points on Friday, Oct. 16. This was considered a huge loss, signaling a bottom to most traders.
They were not prepared when the markets opened in Europe and started selling off based on Friday's New York loss. But Monday, right from the opening, the market sold off and just kept going. The losses in the individual indices were 22.6% for the Dow, 20.5% for the S&P 500, and the Nasdaq, which at the time was the OTC composite index, 11.4%.
George Santayana, a Spanish-born U.S. philosopher and poet, is credited with the quote, "Those who cannot remember the past are condemned to repeat it." That could easily apply to today’s markets.
Now for some actual information...
Interest Rates: December Treasury bonds closed at 1 and 6/32nds on Friday as money made the "trip" from equities back to the relative safety of the U.S. treasury market. Poor U.S. corporate earnings prompted the selling in equities but concern that the European debt crisis, regardless of the rhetoric from various Government officials, continues to plague the markets. We continue to view the treasury bond market as in a range between 145 and 155. On Friday two bank closures were announced by the Federal Deposit Insurance Corp., (FDIC) making the total for the year so far of 47 bank failures. I feel that most bank failures are tied directly or indirectly, to the repeal of Glass Steagel act, and the deep recession causing mortgage defaults as well as bank credit card defaults. When the Clinton Administration signed the repeal in conjunction with then Treasury head Greenspan, it allowed the banks to package mortgages and debt, when good or bad, into securities and then market those securities through their brokerage arms globally. In effect the U.S. banking and brokerage industries, in my opinion, "created" the global debt crisis. Stay with the treasury bonds.
Stock Indices: The Dow Jones Industrials closed at 13,343.51, down 205.43 points or 1.52% on Friday. The S&P 500 closed at 1,433.19, down 24.15 or 1.66%. The tech heavy Nasdaq closed at 3,005.62, down 67.25 points or 2.19%. For the week the Dow still managed a gain of 0.11%, the S&P 500 0.32%, but the Nasdaq lost 1.26%. Poor corporate earnings were responsible for the losses with consumer discretionary stocks suffering the biggest losses. We continue to warn our readers that a "black hole" exists under the equity markets and strongly suggest the implementation of hedging strategies for holders of large equity positions. We can assist in the development of specific strategies based on portfolio composition.
Currencies: The December U.S. dollar index closed at 79.705, up 28 points on shortcovering against most currencies tied to the EuroZone debt crisis. The ECB President Mario Draghi continues to exert his influence in "claiming" that he will support the Euro "whatever it takes". Unfortunately, with the current recession in Great Britain, the economic downturn in the better capitalized Northern Euro members, and the protests against the various austerity programs in Greece, Spain, Italy and others, we would ask Mr. Draghi to "show me the money"……The December Euro closed at $1.3029, down 41 points, the Swiss Franc lost 36 oints to $1.0781, the Japanese Yen 7 points to .012616, the British Pound 60 points to $1.5999, the Canadian Dollar 80 points to $1.0055, the Australian dollar 43 points to $1.0275, and the New Zealand dollar 40 points to .8124.Stay with the dollar.
Energies: November crude oil closed at $90.05 per barrel, down $2.05 or 2.2%, the largest decline since October 3rd. Concern over slowing economic growth and reduced oil demand and against the strong dollar. Support for crude comes from concern over Iran’s nuclear ambitions and the closure of a key U.S. pipeline, the Keystone pipeline. We continue to feel that a global economic slowdown is the prime concern prompting long liquidation of crude. We see no reason for demand to increase other than "fear factors". Hold put positions for our eventual goal, once again, of the $75-80 per barrel level.
Copper: December copper closed at $3.6285 per pound, down 11.45c and the most in over 6 months tied to reduced demand from China, the worlds largest user of copper as well as other materials. Stay with you put positions.
Precious Metals: December gold closed at $1,722.50 per ounce, down $22.20 on signs of economic growth slowdown in China and the stronger U.S. dollar in which it is denominated. Disappointing U.S. corporate earnings prompted selling in equities and buying of bonds as money flowed to the relative safety of U.S. treasuries. We continue to favor the sidelines in gold but for those that "must have" precious metals in their portfolio, we prefer silver. December silver closed at $32.090 per ounce, down 77.8c. October platinum closed at $1,733.90, down $7.30 while December palladium lost $20.75 to close at $626.45 per ounce. Last week was the time to roll October platinum positions over to January.
Next page: Ags and softs
Grains and Oilseeds: December corn closed at $7.61 ½ per bushel, up 3/4c tied to tight supplies but demand remains weak after trading recently as high as $8.49 and is now back to mid July pricing. We prefer the sidelines in corn. December wheat closed at $8.71 per bushel, up 2 1/2c on profittaking after recent buying pushed prices to over $9.51 per bushel. The dollar premium to corn is after trading flat with corn recently. The reports that Ukraine may limit exports and on expectation for dry weather curbing production in the U.S. We would hold any long positions but would not add for now. November soybeans closed at $15.33 per bushel, down 12 1/2c on profittaking after Thursdays rally. November beans are two dollar off the recent high but three dollars off the June lows. Hold long positions but don’t add for now.
Meats: December cattle closed at $1.27375 per pound, down 67.5 points and are just about mid-way between the recent high of $1.31 and the June low of $1.23. We like cattle tied to reduced herd sizes tied to marketings after dry, hot weather caused high feed prices but would only buy on dips. December hogs closed at 79.65c per pound, p 80 points, after touching 79.8c per pound, the highest since August. Shortcovering after recent hog marketings tied to feed prices shortened herd sizes. Rising demand for pork and reduced supplies could prompt additional buying but 82c poses significant technical resistance. Hold longs but raise stops.
Coffee, Cocoa and Sugar: December coffee closed at $1.6110 per pound, up 2.5c on shortcovering but ample global supplies could add to recent selling pressure. Stay out for now. December cocoa closed at $2,469 per tonne, up $31 after a report showed cocoa bean usage in North America was higher than previously forecast. We like cocoa but use stop protection on any new buying. March sugar closed at 20.28c per pound, up 49 points. Sugar may have found support around 20c on shortcovering after recent heavy long liquidation. We like the long side but only due to potential additional shortcovering. Use stops.
Cotton: December cotton closed at 76.6c per pound, down 1.12c after the recent rally that saw prices move 8c higher in a week. Reports that cotton held in the ICE exchange warehouses were at a 17 year low prompted the buying We favor the long side of cotton but use stop protection. On further rallies of a cent or more, raise the trailing stops since the U.S. harvest could be larger than previously estimated.