Credit Crisis: More than what it seems
August 1st 2007 10:36
So the catalyst for a biggest one day fall for the ASX S&P 200 index in 6 years is to mix American Home Mortgage (AMH) and home grown Macquarie Bank. The Australian sharemarket erased 3.3% on Wednesday on the back of fresh concern on credit crunch.
Overnight the US market fell after investors were chilled by news of AMH facing the prospect of liquidating its assets, and possibly bankruptcy, due to the increasingly troublesome credit implosion in the US. On the home front, Macquarie Bank informed investors of losses in two of its investment funds, also related to the US subprime mortage crisis.
Since last week's global equity sell off, we came to an understanding that we could expect market volatility but it seems that we are only scratching on the surface of the current credit crisis. It is difficult to know the true situation if credit companies are concealing the facts.
Expect more volatile conditions to come, and err on the safe side. But for Australia there is still next week when earning reports season begin to provide some fresh boost for the market. However interest rate is stil a paramount concern, with expectations of a hike solidifying by the day.
On the general market overview, US fund manager, John Hussman in his weekly market essay noted that the market breath has deteriorated based on the evidence drawn from Dow Jones Industrial Average (DJIA) that despite over 50% of the eight trading days observed that closed higher, they were accompany with advancing stocks being outnumbered by declining stocks, which formed the basis of negative market breath.
The following is an excerpt of the weekly essay:
Market breadth has clearly deteriorated. This was already evident in the failure of most broad-based advance-decline statistics to confirm the recent highs in the major indices. That early weakness has now been followed by a preponderance of declines over advances.
[...]
Leadership has also reversed decisively. I've noted over the years that substantial market declines are often preceded by a combination of internal dispersion, where the market simultaneously registers a relatively large number of new highs and new lows among individual stocks, and a leadership reversal, where the statistics shift from a majority of new highs to a majority of new lows within a small number of trading sessions.
Seems like we need to embrace for more uncertainty but is it a signal strong enough to warn us where to head?
Overnight the US market fell after investors were chilled by news of AMH facing the prospect of liquidating its assets, and possibly bankruptcy, due to the increasingly troublesome credit implosion in the US. On the home front, Macquarie Bank informed investors of losses in two of its investment funds, also related to the US subprime mortage crisis.
Since last week's global equity sell off, we came to an understanding that we could expect market volatility but it seems that we are only scratching on the surface of the current credit crisis. It is difficult to know the true situation if credit companies are concealing the facts.
Expect more volatile conditions to come, and err on the safe side. But for Australia there is still next week when earning reports season begin to provide some fresh boost for the market. However interest rate is stil a paramount concern, with expectations of a hike solidifying by the day.
On the general market overview, US fund manager, John Hussman in his weekly market essay noted that the market breath has deteriorated based on the evidence drawn from Dow Jones Industrial Average (DJIA) that despite over 50% of the eight trading days observed that closed higher, they were accompany with advancing stocks being outnumbered by declining stocks, which formed the basis of negative market breath.
The following is an excerpt of the weekly essay:
Market breadth has clearly deteriorated. This was already evident in the failure of most broad-based advance-decline statistics to confirm the recent highs in the major indices. That early weakness has now been followed by a preponderance of declines over advances.
[...]
Leadership has also reversed decisively. I've noted over the years that substantial market declines are often preceded by a combination of internal dispersion, where the market simultaneously registers a relatively large number of new highs and new lows among individual stocks, and a leadership reversal, where the statistics shift from a majority of new highs to a majority of new lows within a small number of trading sessions.
Seems like we need to embrace for more uncertainty but is it a signal strong enough to warn us where to head?
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