For Friday, Nov 25, the market forecast is uncertian

We recommend selling your equity positions and holding cash, or otherwise moving to a risk-off position.  Avoid money market funds as a cash alternative due to exposure to European sovereign default risk.

Technical Comment:

The S&P 500 plummeted 2.2% on Wednesday.  Volume was lighter than Tuesday and below the 30-day moving average volume.  Light volume is common during the holiday week.  Since volume was lighter than Tuesday the development of a pattern predictive of further downward motion has not fully developed.  Still, the large drop in the index is indicative of weakness and further downward motion remains likely.  US markets are closed Thursday and open for a shortened trading session on Friday.

Subjective Comment:

The big news from the Eurozone debt crisis on Wednesday was a failed bond auction in Germany.  Germany is considered the strongest financially within the Eurozone, but the German government failed to get bids for 35% of their 10-year bonds offered at auction.  Six of the last eight bond auctions by Germany have received fewer bids than the maximum amount offered, and Wednesday’s proportion of unsold debt was the highest since 1995.  In an article published by Bloomberg, a director as Southwest Securities commented on Wednesday’s auction, stating “This… is nothing short of a disaster for Germany.  If the strongest nation in Europe has this kind of difficulty raising capital, one shudders concerning the upcoming auctions in other European nations.”  This failed German auction appears to be the trigger for Wednesday’s large decline in European and US markets.  Investors are not interested in purchasing German or other forms of European debt at the current prices, even though bond prices have been going down.

It seems clear the money otherwise available to purchase bonds in Europe is moving into US bonds as a safe haven.  We mentioned in our previous post Tuesday’s strong performance on the sale of 5-year US bonds.  This past Monday there was also a record high 2-year bond auction in the US.  Wednesday there was a record low yield on the 7-year bonds auctioned by the US.  The strong performance on US bonds shows investors are afraid of European debt and are concerned about the impact to world stock markets as things get worse.


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Happy Thanksgiving!

One Response to For Friday, Nov 25, the market forecast is uncertian

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