New York Stock Exchange on the Edge

By: Greg Silberman | Wed, Nov 21, 2007
Print Email

The battle for 12,850 continues!

We're writing this article on Wednesday, 21 November 2007 at 11am. By the time you're reading this article the battle for 12,850 on the Dow might be over. Once this last line of defence gives way the levees may fall.

So what's so important about 12,850?

12,850 marks the closing low on the Dow during last Augusts' swoon. A break below this level would probably cause further selling. How much more?

Chart 1 - Dow Monthly chart; Yen (bottom)

As mentioned above, at the time of this writing the market is weak and it looks as if resistance may fall. This is not to say a White Knight won't magically enter the picture at the close (as often happens) and save the day. But let's assume for now that resistance does fall. Is it the end of the world?

The above chart shows how influential the Yen Carry Trade has been in the stock market. The Yen (bottom) has been rallying since July and has caused all sorts of problems for the Dow. The Yen has recently burst out of a long basing pattern (green line) and has painted a target of around 100. Therefore, if the immediate past is any indication, a 10% rise in the Yen could see the Dow shave off roughly the same and fall to approximately 11,600 (which is a Fibonacci resistance level).

Incidentally 11,600 is approximately the year 2000 top on the Dow. That level was breached in early 2006 and has never been retested - looks like it will now.

Some Positive Signs emerging out of the Gloom:

The market has been led lower by a slew of bad news from the financials. Not a day goes by where some institution isn't disclosing the extent of their write-downs.

This incessant selling has caused the banking index to already retest its 2006 breakout levels.

Chart 2 - Banking Index retests breakout; Banking Index vs. Dow bellow

Of interest is the relative weakness in Banks vs. the Dow (bottom). The ratio is approaching stiff multi year resistance and is likely to be repelled lower, indicating in both relative and absolute terms that the fall in the Banking index may be close to over. That would be good for the overall market as banks have been the epicentre of economic woes.

What's the Fed's response?

Will the Fed allow the markets to deflate without a fight?

Based on their recent propensity to reduce interest rates we'd have to say a loud No!

Thus we have to conclude, whether successful or not, the Fed will go on an all out offensive and print money till the Cows come home. Long-term this can only benefit Gold and Commodity investments.

NEWS FLASH: Dow got hammered at the close finishing at 12,797 and below critical support. Looks like its time for those 100 Dollar Bill drops Mr. Bernanke.

More commentary and stock picks follow for subscribers...



Author: Greg Silberman

Greg Silberman CA(SA), CFA

Greg Silberman

Profession: Research Analyst and Newsletter Editor
Company: Ritterband Investment Management LLC

Career Brief: Greg qualified as the youngest Chartered Accountant and Chartered Financial Analyst (CFA) in South Africa in 1998 at 25 years old. After completing his traineeship with Grant Thornton he moved to London where he worked for JP Morgan Chase in their Fixed Income Swaps Division. Sick of the grey skies and cold weather Greg relocated to Atlanta, Georgia where he spent the next 4 years freelancing as a management consultant. His targeted clients were fast growing mid size US based companies and he worked across many industries including credit cards, health insurance and energy trading. Greg has recently returned from Sydney Australia where he spent the last 2½ years working in Equity Derivative Structuring for Perpetual investments a major Australian Asset Management Company.

Greg has a passion for the markets and has been writing Greg's market newsletter for 2-years. A newsletter focused on metal and energy stocks and recently non-resource small caps listed in the US and Internationally.

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Copyright © 2006-2008 Greg Silberman

All Images, XHTML Renderings, and Source Code Copyright ©