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Saturday, February 4, 2012

What has changed in this market in last 6 week that US market is sitting at May 2008 level ?

On Friday, Feb 3rd, Dow Jones Industrial Average closed at 12862 and S&P500 closed at 1344. Most of us are surprised to see Dow and S&P500 sitting at May 2008 level inspite of continuous fear and panic created between in last 6 week. We saw big swing in the market between July - Nov 2011 when the market use to drop 300 point on daily basis. Nothing has changed in this market between December and January. 

Lets see how Greece impacted stock market:

May 6th 2010: Greece debt crisis fear brought Flash crash and US stock market declined 1000 point.
Aug - Oct 2011 - Every news from Europe caused 300 point swing in this market.
Nov 1st 2011 - Greece PM said he was thinking of referendum & this brought the market down by 600 point.
Since October, Greece Finance Minister, IIF, and main stream media are fooling people about the deal. Infact past 6 week, Greece Finance Min and IIF have been releasing news that they are "One step away" and on Thursday there was breaking news that they are just "An hour away" from the deal. Eurozone minister have done nothing to raise EFSF or ESM. They just keep talking and haven't delivered anything.

We saw flash crash in May 2010, just on the news that Greece might default, but now its reality that Greece will default, yet stock market is rallying up.

When US was downgraded in August, 2011, Stock market fell almost 2000 point.

Similar fear was created when Eurozone was put on credit watch negative in December and stock almost fell down 500 point in no time just on the news. Since everyone saw 2000 point drop on US downgrade, most of the retail investor took defensive position to take advantage of any downfall on France downgrade. But the stock market have rallied up. 

Nothing has changed in  last 6 week , but VIX is at 17.10 which is comfortably in bullish territory even though the volume has been declining in Dow, Nasdaq, and S&P500.  

US Gross domestic product 
            (Q1   Q2      Q3     Q4)
 2009 (-6     -0.7      1.7     3.8)   
 2010 (3.9    3.8       2.5     2.3 ) 
 2011 (0.4    1.3       1.8     2.8)

Look at the above data, inspite of stronger GDP in 2010, Dow never crossed 11600, and S&P500 never crossed 1270. But right now Dow & SP500 are sitting at May 2008 level.

Almost 80% of the companies have lower their guidance and some are even posting loss yet stock market is rallying up. For example look at AA, LULU, CROX, XLNX and so on, just because this companies think outlook is positive, their stock have rallied.

Now lets look at the layoff of big companies after August 2011, BAC laying off 40k, Citi laying off 4k, Kraft food laying off 1.6k, DNDN laying off 500, Border group laying off 11k, AMR laying off 13k, Verizon laying of 360 in New Jersey, P&G laying off 1600, THQ laying 250, MSFT lay off 200, Abott lay off 700, UPS layoff 450. This list doesn't even include 90k layoff that will happen to temporary holiday worker. If you look at the unemployment rate of college graduates is above 23%, who has thousand of dollar in loan and they can't pay it back because they have no jobs in this market. Infact every month job lost is 5 times then job added added in the economy.

Conclusion: As I have always said, this stock market is like casino where only big dealer will win. Big fish eat small fish no matter what side you take. Wall street always try to engulf maximum people money. Since the fear was ON and many took defensive side, and so the stock market had to rally. Now once the people cover their position and many new investor put in their hard earned money thinking its bull market, the stock market will again take a downturn. There were 50 bad news in this market which could have triggered big sell off but the market rallied on 2 good news.

Keep cash in hand and don't burn your hard earned money in this crazy market unless your day trader or unless this market comes to reality.

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