Dear PGM Capital Blog readers,
In this weekend's blog edition, we want to discuss with you, the market rout in the West that started around mid September this year.
U.S. stocks capped a wild week with fresh losses, as sharp declines in technology shares dragged the broader market lower and the Dow Jones Industrial Average fell back into negative territory for the year.
In the week of October 6, the DOW Jones Industrial plunged a whopping 465.59 points or 2.74% as can be seen from below chart.
From its all time high of September 19, 2014 of 17,279.74 points, the DOW-30 Index fell with 735.64 points or 4.32 percent in the period of September 19 - October 10 and is now down for the year.
The tech-heavy Nasdaq Composite ended down 102.10 points, or 2.3%, to 4276.24, bringing its losses for the week to 4.5 percent. That marked the largest weekly point decline for the Nasdaq since early August 2011, when the U.S. credit rating was downgraded.
The S&P 500 declined 22.08 points Friday, or 1.1%, to 1906.13, and finished down 3.1 percent for the week, its worst weekly point showing since September 2011.
European shares dropped sharply on Friday and Germany's stock market, one of the region's best performers since the 2008 financial crisis, fell to a one-year low as concerns mounted over the German and global economies.
The DAX, which had soared to a record high of 10,050.98 points in June of this year, depreciated with 574.47 points or 6.15 percent, in the week of October 6, to close at 8,788.81 points on Friday October 10 as can be seen from below chart.
As can be seen from below chart the German DAX is down 809.44 points or
8.43 percent Year-to-Date.
The Londen FTSE-100, fell with 3.2 percent during the week of October 6, to close on Friday, October 10 at a 52-week low of 6,339.97 points as can be seen from below chart.
THE VIX AT 20-MONTH HIGH:
The VIX is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 30 day period.
As can be seen from below chart the VIX, spiked up on Friday, October 10 with 2.48 points or 13.22 percent to 21.24 points, which is its highest close in over 8 months.
Above chart shows that the VIX is up 40% in the week of October 6, and has experienced its 2nd biggest week in over 4 years.
THE CNN FEAR & GREED INDEX AT EXTREME FEAR:
CNN has a "Fear and Greed" index for the market. They use some indicators to attempt to sense how fearful or greedy investors are at the time. They then display their results on a 0-100 scale, 0 (zero) being the most fearful and 100 (one hundred) being the most greedy. If investors are greedy stock prices should rise and if they are fearful stock prices should fall.
As can be seen from below chart, the CNN Fear & Greed Index hit a record low of 1 (one) on Friday, October 10, 2014, which indicates Extreme Fear.
PGM CAPITAL COMMENTS:
After reading the above, most of you would be asking yourself:
- So what does this all mean?
- Could a nasty “October Surprise” be looming?
- Or even a market crash?
It’s no secret that October can be a scary month for investors. Some of the worst declines in history have taken place this time of year.
- The Dow falls a total of 23% for October 28 and 29, 1929, in the great market crash of that year.
- On Black Monday, Oct. 19, 1987, stocks crashed by an even more stunning 22.6 percent.
- The DOW plunged 7.2 percent on October 27, 1997, during the Asia economic crisis.
- During the credit market meltdown, the Dow collapsed 7.9 percent on October 15, 2008.
This time around, with the DOW and other Indexes in the West at a much higher level, an equivalent point decline to some of those would be pretty shocking.
Based on the DOW closing price of 16,544.10 of Friday October 10, a decline of 7.2 percent would equate to around a drop of 1,200 or so points, decline of 12.8 percent would be drop of around 2,100 points, and a 22.6 percent decline would be a stunning drop of 3,700+ points.
The last 6 months we have been raising the red flag over and over again that based on fundamental analysis, the Capital Markets in the West, are heavily overvalued and totally disconnected with their respective underlying economies and that it isn't IF but WHEN we'll see a sharp correction of at least 20 percent.
The only reason that the marktets were up, up to September this year was due to the fact Technically they were Bullish and Greed was a a maximum with subsequent the VIX index at a minimum.
The fact that the DOW, has erased all its yearly gains, can be viewed as a good wash-out catalyst but professional traders use the S&P 500 for their charts, for which the next big line of support is the 200-day moving average at 1,904 as can be seen from below 5-year chart of the S&P-500.
With the close of the S&P-500 at 1,906.13 on Friday October 10, we are very close at this support line, if the S&P breaks through the 1,904 support it might air pocket down to 1,800 which is another 5.6% lower from its close of October 10, 2014. If we get there the S&P 500 will be negative for the year and the VIX will be at least 40, the value it reached during the correction of the summer of 2011, as can be seen from below chart.
In our blog article of August 17, we informed our readers that Billionaires are selling their stocks of US-Financial companies, are shorting the S&P-500, are buying Gold and stocks of gold- & silver mining Companies.
As can be seen from below chart since mid September this year, US financial stocks tumbling back down to the country's credit level.
The other side of the story is also true for the Asian markets, with low multiples, which haven't gone through a bubble like the ones in the West are up for the year.
As can be seen from below chart the Chinese CSI-300 index Year-to-Date is up with 136.33 points or 5.85 percent as can be seen from below chart.
On the commodities front as can be seen from below chart:
- Gold was up with 2.7 percent in the week its best week in 6 months.
- Silver was up with 2.9 percent in the week its best week in 4 months
- WTI Crude plunged 4.6% - worst week in 9 months; 2-week collapse 8.5% is biggest since June 2012.
- Most basic commodities were also up during the week.
It is also worth mentioning that regarding Precious metals, Gold, Palladium and Rhodium are all up Year-to-Date.
The questions most investors would be asking themselves is how deep can the markets in the West fall and if it triggers a recession, how deep will this recession be.
Ladies and gentlemen, the markets in the West with the accent on the ones in the USA, and the US-Dollar fundamentally have lost all connections with the economic reality of the respective countries and especially the USA.
The West is up to their eyeballs deep into debt and the economy hasn't gone into recession due to massive money printing of their respective central banks, who have flooded the market with cheap money which has inflated the respective stock markets in the West.
This hot air is now coming out of the markets and soon - based on fear - we will see investors running to the safety ground of portable hard assets like Gold, Silver and other precious metals, which have suffered so much during the formation of the current stock market bubble that is now imploding.
Last but not least we'll repeat two very important quotes of Warren Buffett and John Maynard Keynes, which most investors have forgotten in the last 3 years of extreme greed and massive speculation.
Be Greedy when others are Fearful and Fearful when others are Greedy.
John Maynard Keynes:
The market can remain irrational longer than you can remain solvent.
Based on the above we are currently adding Gold and other precious metals to our personal portfolio and at the same time we are shorting the USA Markets and the US-Dollar in order to profit from the (coming) correction in US-Equities and the US-Dollar.
Before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don't move in a straight line.
Until next week.