Wednesday, February 28, 2007
Carnage (on a Global Scale)
What can I say? When I said in my last post that these markets wanted to go down I never thought they would go down as severely as they did.
We have just traded through the biggest one day drop since 2003.
The Dow at one stage was over 500 points down (although Dow Jones are saying that this was due to a software glitch). It finally lost 416.02 to end on 12,216.24, the biggest one day point loss since Sept. 17, 2001, when Dow tumbled nearly 685 points.
It was the seventh biggest one-day point drop ever for the Dow. On a percentage basis, the Dow lost about 3.3 percent - its biggest one-day percentage loss since March 2003.
As for our favourite, the SPX, that was down 50.33 to 1,399.04. This was a fall of about 3.5 percent - its worst one-day percentage loss since March 2003.
The fall obviously smashed through our stop loss and we closed the play in amber.
The price we closed at was $3.85. The play was sold at $1.25 so we had a loss of $2.60 (385-125) (ie a loss of $260 for every contract placed).
Our exit price of $3.85 was a bit steeper than I would have liked but to be honest the markets went into absolute meltdown so it is was good just to get out. Anybody long yesterday was taking huge losses.
For the year though the system is still in profit and I would hope that once the next trade will be placed the markets will have settled themselves down and we can look forward to some stability which is what we love!! We have survived to fight another day which is what this game is all about. Remember it's a marathon we are running....not a sprint.
So why did it happen?
To be honest these markets were due for a correction for some time as they had just been on a frantic bull run since August 2006. Anybody who has read this blog or watched CNBC could tell you that. Yesterday was the perfect day for traders to take profits and then it turned into a stampede for the exit.
The selling started overseas when the Shangahai Index in China slumped 9 percent in Tuesday - the worst one-day selloff in a decade - on concerns that the government would interfere to cool the speculation that drove the market up nearly 130 percent last year.
Other Asian markets then slumped in tandem. European shares also tumbled.
Then there was attempted bomb attack against Dick Cheyne by the Taliban in Afghanistan. Iran also made some more sabre rattling noise.
Back to the US, the durable Goods report then showed a steeper-than-expected decline in durable goods orders in January, adding to concerns about slowing economic growth. Greenspan the previous day had indicated the US was going into recession which didn't help.
Slowing growth ultimately drags on corporate profits, making stocks more expensive relative to earnings.
All of the above combined to make the perfect excuse to sell. And the rest you know about.
For some of you this will be your first loss.....and it won't be your last. Next time though it will probably not come so violently! Falls like this don't (thankfully) happen frequently. It should be a good few years until the next one (I hope!!!!). Losses are simply an expense of us doing business.
What is important is that you get back into the saddle again. We now have have a two and a half week break before the next play and within that time we can see how the markets are shaping up before we decide what to do next.
I'll still be posting keeping an eye on what is happening so please do keep checking in.
Until next time.
We have just traded through the biggest one day drop since 2003.
The Dow at one stage was over 500 points down (although Dow Jones are saying that this was due to a software glitch). It finally lost 416.02 to end on 12,216.24, the biggest one day point loss since Sept. 17, 2001, when Dow tumbled nearly 685 points.
It was the seventh biggest one-day point drop ever for the Dow. On a percentage basis, the Dow lost about 3.3 percent - its biggest one-day percentage loss since March 2003.
As for our favourite, the SPX, that was down 50.33 to 1,399.04. This was a fall of about 3.5 percent - its worst one-day percentage loss since March 2003.
The fall obviously smashed through our stop loss and we closed the play in amber.
The price we closed at was $3.85. The play was sold at $1.25 so we had a loss of $2.60 (385-125) (ie a loss of $260 for every contract placed).
Our exit price of $3.85 was a bit steeper than I would have liked but to be honest the markets went into absolute meltdown so it is was good just to get out. Anybody long yesterday was taking huge losses.
For the year though the system is still in profit and I would hope that once the next trade will be placed the markets will have settled themselves down and we can look forward to some stability which is what we love!! We have survived to fight another day which is what this game is all about. Remember it's a marathon we are running....not a sprint.
So why did it happen?
To be honest these markets were due for a correction for some time as they had just been on a frantic bull run since August 2006. Anybody who has read this blog or watched CNBC could tell you that. Yesterday was the perfect day for traders to take profits and then it turned into a stampede for the exit.
The selling started overseas when the Shangahai Index in China slumped 9 percent in Tuesday - the worst one-day selloff in a decade - on concerns that the government would interfere to cool the speculation that drove the market up nearly 130 percent last year.
Other Asian markets then slumped in tandem. European shares also tumbled.
Then there was attempted bomb attack against Dick Cheyne by the Taliban in Afghanistan. Iran also made some more sabre rattling noise.
Back to the US, the durable Goods report then showed a steeper-than-expected decline in durable goods orders in January, adding to concerns about slowing economic growth. Greenspan the previous day had indicated the US was going into recession which didn't help.
Slowing growth ultimately drags on corporate profits, making stocks more expensive relative to earnings.
All of the above combined to make the perfect excuse to sell. And the rest you know about.
For some of you this will be your first loss.....and it won't be your last. Next time though it will probably not come so violently! Falls like this don't (thankfully) happen frequently. It should be a good few years until the next one (I hope!!!!). Losses are simply an expense of us doing business.
What is important is that you get back into the saddle again. We now have have a two and a half week break before the next play and within that time we can see how the markets are shaping up before we decide what to do next.
I'll still be posting keeping an eye on what is happening so please do keep checking in.
Until next time.
# posted by Paul @ 4:56 AM 
