FullyInformed.com

Market Direction: What I Think Is Happening In The Markets

Sep 20, 2011 | Stock Market Outlook

My market direction calls are always just my best guess, but today’s action reminded me of some other events in the past including the Lehman Collapse and the GM Bankruptcy.

For weeks now the market has been worried about the European Union and in particular Greece. Remember now, everything in this guess (as in all guesses) is just my opinion. There is no way that Greece can repay so default is a given. It doesn’t matter whether they try to revamp their debt, pay only some of it, or extend time periods, the outcome remains the same – default.

Market Direction: The 3 Stages Of Default

Sovereign debt, like all debt whether personal, institutional or corporate, is often the same. The money is borrowed and for a time everything seems fine. The debtor pays its interest payments and may even try to reduce the principle by a small amount. But as time passes more debt is piled on and yet the debtor thinks there is really nothing to worry about.

Eventually though the realization sets in that the debt is too large. Just as a bad debtor finds out, borrowing costs skyrocket when he goes looking for more money. Greece is finding the same thing.

Next up comes the denial stage. The debtor tries to convince himself and others that he can handle it. That he has everything under control. Finally comes the acceptance stage where the debtor decides that bankruptcy is the only logical course of action.

Europe and Greece are going through all these stages. They are now in the acceptance stage which is why I believe the European Governments are working to shore up their banks so that when the Greek default happens the damage to the banks is contained. Unlike the Lehman Collapse, the Europeans believe they can contain the damage in advance of it actually happening. Personally I don’t believe any of the Greek default is “baked into the market”, as they say.

The governments want to have the default happen after markets close and preferably on a weekend. They believe that the markets may have a bad Monday or even Tuesday, but then they might stabilize. The rumor mill will be working overtime when the default occurs and everything from the death of the Euro to the breakup of the EU will be on the rumor channels. The European Governments know this and hope by preparing in advance they can control losses.

Market Direction: Remembering The Fed

Look back through the last few years. The Housing Credit Crisis was supposedly contained. The Federal Reserve not only talked about how well it was containing it, but actually assurd the nation that there was nothing to be concerned about. The market flailed back and forth in 2007 and early 2008 as investors “wanted” to believe the Fed. In the end Lehman Brothers caught many by surprise and the damage was immense to the market.

GM’s bankruptcy was handled very differently. The Government talked up GM. They first indicated that there was no way that GM would go into bankruptcy. As debt and health benefits made it so very clear that GM was doomed, the government insisted they would be there for GM. This is the denial stage. However within a very short time, the direction changed into acceptance and the government then indicated that they would put GM through a “quick”, “painless” bankruptcy and get the company back operating within weeks.

We have all seen this type of market manipulation before. Every decade has all kinds of market manipulation events. I believe the Greek Credit Crisis and GM are fine examples.

Market Direction: Investors Want To Believe

Meanwhile the stock market direction is reflecting investors concern. Investors are hoping or want to believe that the crisis will be contained. Look at the chart of the S&P from today, below. The market dropped at the open worked its way lower, but then when it didn’t “fall out of bed”, it climbed all the rest of the day almost reclaiming the day’s loss. It’s because investors want to believe.

Market Direction: S&P 500 chart Sep 19 2011

But with Greek 1 and 2 year interest rates at 90% and 80% respectively, investors need to realize that Greece will default. It may not be this week or next but sometime over the next several to perhaps six months, the country will default.

I believe you can tell from the market direction action that the government are trying to prepare their banks for default while keeping investors hanging onto their stocks, but the loss in stock value could be enormous unless they get it just right. Select this market direction link to view the past 3 months of the SPY.

Market Direction: Staying With Bear Strategies

So there you have it. This is my interpretation of what’s been happening in the market. Personally I am staying with strong bear strategies like selling deep in the money covered calls, far out of the money naked puts, shorter time frames, selling far out of the money naked calls and holding spy put contracts at varying times throughout each week.

At the start of the year I indicated that my financial investment strategy would be the cautious bull. This strategy works well when the market direction is sideways to down.

Search

Select to view all results...

Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors

Recent Outlooks

Stock Market Outlook for Thu Mar 28 2024 – Choppy – Dips Likely – But Higher

Prior Trading Day Summary: On Wednesday investors returned and snapped up stocks that had drifted lower. The SPX bounced at the open and by the close it was up 45 points to close at 5248. The NASDAQ rose 83 points …

Morning Investing Strategy Notes for Wed Mar 27 2024

For FullyInformed Members the morning Investing Strategy Notes for Wed Mar 27 2024 discuss the outlook for Wednesday and comments on a possible correction and what it might entail. There are a number of trade ideas outlined including FedEx Stock …

Stock Market Outlook for Wed Mar 27 2024 – Unconfirmed MACD Down Signal

Prior Trading Day Summary: I lost my power shortly after the markets closed. Articles this evening will be shorter if I can post any. On Tuesday trading volume picked up as stocks fell for another day. The SPX closed near …

Morning Investing Strategy Notes for Tue Mar 26 2024

For FullyInformed Members the morning Investing Strategy Notes for Tue Mar 26 2024 discuss the outlook for Tuesday. As well there are comments on support levels to watch in the SPX for the week. There are a number of trade …

Stock Market Outlook for Tue Mar 26 2024 – Still Bullish

Prior Trading Day Summary: On Monday low trading volumes hindered the chance of a positive close. The SPX saw just 3.4 billion shares traded. This matches the volume on last Friday. While poor , it is also bullish as it …

Morning Investing Strategy Notes for Mon Mar 25 2024

For FullyInformed Members the morning Investing Strategy Notes for Mon Mar 25 2024 discuss the outlook for Monday and the shortened week ahead of the Easter holiday. There are a number of trade ideas outlined including FedEx Stock (FDX), Nike …

Stock Market Outlook for Mon Mar 25 2024 – Dip Likely But Higher Close

Prior Trading Day Summary: On Friday investors took profits ahead of the upcoming shortened Easter week with indexes sitting at all-time highs. On Friday the SPX closed down just 7 points to 5234. For the week the index was up …

Morning Investing Strategy Notes for Fri Mar 22 2024

For FullyInformed Members the morning Investing Strategy Notes for Fri Mar 22 2024 discuss the outlook for Friday. There are a large number of trade ideas outlined including FedEx Stock (FDX), Nike Stock (NKE), Lululemon Athletica Stock (LULU),  and more …

Stock Market Outlook for Fri Mar 22 2024 – Choppy – Dips Possible But Still Up

Prior Trading Day Summary: On Thursday all 3 indexes closed at new all-time highs for a second straight day. Volumes remained decent but stocks are seeing some selling as investors are taking a few profits with the indexes at new …

Morning Investing Strategy Notes for Thu Mar 21 2024

For FullyInformed Members the morning Investing Strategy Notes for Thu Mar 21 2024 discuss the outlook for Thursday following Wednesday’s FOMC interest rate decision and Fed Chair Powell’s news conference. There are a large number of trade ideas outlined including …

Stock Market Outlook for Thu Mar 21 2024 – Higher Still

Prior Trading Day Summary: On Wednesday the SPX, Dow Jones and NASDAQ indexes all closed at new all-time highs. Comments from Fed Chair Powell reaffirming 3 rate cuts in 2024 were still “on the table” was all that investors needed …

Morning Investing Strategy Notes for Wed Mar 20 2024

For FullyInformed Members the morning Investing Strategy Notes for Wed Mar 20 2024 discuss the outlook for Wednesday and the latest FOMC interest rate decision. There are also a number of trade ideas outlined including Chewy Stock (CHWY), SPY ETF, …

Stock Market Outlook for Wed Mar 20 2024 – All About The Fed – Bullish

Prior Trading Day Summary: On Tuesday the morning started with a dip down to 5131 but buyers were waiting for the dip and volumes picked up. Deep dips in a number of big caps like NVIDIA Stock (NVDA) found ready …

Morning Investing Strategy Notes for Tue Mar 19 2024

For FullyInformed Members the morning Investing Strategy Notes for Tue Mar 19 2024 discuss the outlook for Tuesday following Monday’s rally and before Wednesday’s latest FOMC interest rate decision. There are also a number of trade ideas outlined including Chevron …