As the bad news and the uncertainty about the financial rescue plan accumulate and stay, the global stock markets continue to fall. Uncertainty about the banking rescue plan advanced by US Treasury Secretary Henry Paulson Jr. and deepening gloom that the global financial crisis is biting harder hit Asian markets hard on Thursday. Tokyo closed down 5.25%.
Alfred E. Goldman, Chief Market Strategist at Wachovia Securities, comments on the Market opening.
Stocks sold off sharply Wednesday, making it five of the past six days down for the DJIA. Rallies were feeble and the level of pessimism rose sharply. Stocks sold off early before Treasury Secretary Paulson gave an update on the TARP program at 10:30 ET. His comments seemed to grease the slide for additional selling.
In our opinion, the speech gave the impression that the Treasury Department is confusing investors about whether or not it knows what it is doing. Paulson said the plans for the remaining funds in the rescue package are earmarked to relieve pressure on consumer credit supply rather than buying banks troubled assets, the latter of which was the original intention of the rescue package. In this nervous environment, this was not a confidence builder for investors.
The rise of pessimism was evident in the tone of the media, the phone calls we received and the volatility indicators spiking again. The CBOE Volatility indicator (66.46, VIX) and NASDAQ 100 Volatility (65.33, VXN) closed near their highs: The VIX has risen more than 50% since the intraday low on Election Day. CBOE put/call ratio rose back near the high made on Oct 10 when the major averages made their intraday lows to this point. The number of NYSE new lows (452) continues its upward trend since the extreme reading Oct. 27, which were the closing lows for the major market averages to this point. The broad market reached extreme negative levels again with 92% of NYSE issues trading down and 96% of volume to the downside. Overall volume picked up considerably from the past three day's levels, but did not reach climactic levels.
As we pointed out yesterday, in this very nervous stock market, good news helps, but only for a short period and does not generate cumulative buying. Investors continue to obsess on the negatives and eliminate the positives of coordinated worldwide central bank rate cuts, extraordinary moves by the Fed, and the government rescue package. This is a sign that investors are not ready to buy at these levels.
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