A Nasty Week Indeed- For Wall Street

July 27, 2007

Tuesday was bad with the Dow off 226 points. Triple digit losses knock a lot of people out of the market or send then running to leverage a way to stay in. But, Thursday was even worse, falling 312 points. Look at it this way though. At one point the Dow was down 400+ points. Is that enough silver lining? I didn’t think so. Anytime the market drops over 500 points in 2-3 days, it’s hurtsville for everyone. Whoa, wait a minute. The brokers always make money. They get theirs going IN and they smile as you go OUT. This is even better than being a lawyer. At least they have to spend some time and show you “billable hours” for the money they take: winning the case or losing it- they get paid!

It’s not like I didn’t say trouble was close at hand last week. But the amrket will come back right? Hmmm.

Investors who had been able for months to largely shrug off discomfort about subprime mortgage problems and a more difficult environment for corporate borrowing finally decided it was time to sell after the Commerce Department issued another disappointing home sales report. Worries that have been out there for the past couple of years are coming to a head right now,” said investment strategist Edward Yardeni, president of Yardeni Research Inc. “It’s show time.”

Yeah, like show me more money to keep your account afloat!

Thursday’s trading was the latest and most extreme in a series of frenetic sessions over the past month – many also accompanied by triple-digit swings in the Dow – as investors sold on worries about the subprime fallout or bought on optimism that there wouldn’t be any widespread problems caused by mortgage failures. Many analysts have described the back-and-forth trading as overwrought and based more on gut emotion than careful consideration of market and economic fundamentals.

The Dow plunged 311.50 or 2.26 percent, to 13,473.57 after falling 449.77 in earlier trading. The close was its worst since the 416.02 it lost on Feb. 27, when a drop in the Shanghai stock market rattled world exchanges. Broader market indicators also slid. The Nasdaq composite index tumbled 48.83, or 1.84 percent, to 2,599.34, while the Standard & Poor’s 500 skidded 35.32, or 2.33 percent, to 1,482.77.

Everyone left the party with pockets more empty.

The declines triggered a global sell-off in stocks, causing minor losses in Europe to accelerate rapidly along with the Dow’s drop. In Europe, Britain’s FTSE 100 closed down 3.15 percent, Germany’s DAX index dropped 2.39 percent, and France’s CAC-40 fell 2.78 percent.

And this onservation from a financial guru that has a great track record, Richard Russell, “Here’s something else. It’s obvious that the market is becoming highly selective. For instance, yesterday there were 412 new lows on the NYSE. Considering that around 3700 different stocks trade every day on the NYSE, yesterday saw about 12% of NYSE stocks breaking down to new lows. That’s the poorest performance for this year to date. Today (Thursday) there were over 700 new lows and counting. That’s almost one out of every five stocks on the NYSE.”

And he added-

“Of course, it’s the trend of new lows that I’m interest in. The fact that the number of new lows on the NYSE continues to rise is not good. From an investment standpoint, the worst thing that ever happened to me is that I’ve lived through periods when stocks were really cheap, I’ve seen good stocks that were selling at 5 or 6 times earnings, while providing dividend yields of 6 to 10%. Then I look at stocks today, and I cringe a bit. We’re in never-never land!”

Written by Ernie · Filed Under Daily Commentary