Financial Markets Behaviour of 2009 Tracking that of 2009
Stock-Markets / Financial Markets 2009 Aug 12, 2009 - 08:36 AM GMTBy: Graham_Summers
Ok, now I’m starting to get spooked.
Long-time readers know that I’ve frequently commented on the eerie similarities between how the financial markets behaved in 2008 and 2009. However, at this point, things are beginning to border on “conspiracy theorist.”
In both years, commodities bottomed first (Jan 23, 2008 vs. Feb 23 2009). In both years, the Feds stepped in with a major intervention in Feb/ March (Bear Stearns ’08 vs. Obama Stimulus ’09). This in turn kicked off a major rally in which both stocks and commodities soared higher together.
Both asset classes began to lose momentum in the early summer with the Baltic Dry Index peaking in late May ’08 vs early June ’09. Stocks and the Baltic then rolled over, falling into July:
June 1-August 5, 2008: Baltic collapses 28%
June 1-August 5, 2009: Baltic collapses 25%
Stocks first followed the Baltic, but then staged a massive reversal due to interventions/ short squeezes. In 2008, this came in the form of the Fannie/ Freddie bailout and the SEC banning cracking down on naked short selling. The actual bottom for stocks was July 15.
In contrast, the July 2009 bottom came July 10: the week Meredith Whitney forecast a short rebound in financials and the Federal Reserve pumped $80 billion into the markets (its first expansion in four weeks). We also got a major short squeeze from various brokerage firms banning inverse ETFs and the SEC jumping in with another move against naked short-selling on July 29.
Thus the short-covering rallies in 2008 vs. 2009 are as follows:
July 15- August 5, 2008: S&P 500 rallies 5%
July 10- August 5, 2009: S&P 500 rallies 14%
In both years, the Baltic Dry Index failed to confirm the stock rally: implying that the stock rally represented a disconnect from underlying economic realities (refer to the above listing of Baltic collapses June-August).
2008: the Baltic doesn’t join in the July party:
Ditto for 2009:
In a nutshell, the Baltic and the CRB’s drop served as a major warning sign in 2008. And this is precisely what is happening today. The Baltic continues downward and commodities are showing some signs of weakness. Meanwhile stocks are highly overbought and in serious need of a correction.
If we continue to follow the 2008 pattern from here, stocks will have a choppy August. We’ll then see a complete unraveling of the market rally in late August/ early September. This will then segue into a nightmarish September-October.
Bottomline: if 2009 continues to follow the 2008 pattern, we are in for a NASTY autumn. The fact that both the Baltic Dry Index AND commodities are not confirming today’s stock rally is a serious warning to the Bulls’ argument that this is a new Bull market.
My advice is to watch commodities and the Baltic Dry Index closely. These two sectors lead stocks on the upside. They’ll likely lead on the downside too. I suggest you watch commodities in particular. These, more than stocks, follow economic realities. So if commodities roll over in a meaningful way, stocks are on borrowed time.
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Good Investing!
Graham Summers
Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets.
Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.
Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.
© 2009 Copyright Graham Summers - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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