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Tuesday was a "great day for the bulls" because the market opened by moving down 460 points (Dow Industrials), but then ended the day down only 128 points.
That means that there was a "nice rally" of 330 points, which makes it a good day.
This is the kind of reasoning that makes my head spin. The market has been down almost every day this year, but today was a good day because it fell ONLY 128 points on a day when the Fed made a historically huge emergency interest rate cut.
And remember Najarian, the guy I quoted a few days ago about a "volatility explosion" on Tuesday. (Actually, he was dead right about that; volatility was huge.)
Well, after the market closed on Tuesday, Apple computer announced quarterly earnings in line with expectations, but projected next quarter's outlook as substantially below expectations, because of poor iPod sales during the holiday season. Apple stock fell sharply in after-hours trading. (This paragraph corrected on 24-Jan.)
According to Najarian, this is a GREAT buying opportunity. Why? Because the price/earnings ratio on the stock has fallen .... wait for it .... BELOW 25!!
It doesn't matter to Najarian that this historical average for price/earnings ratios is around 14, and that Apple has been way above average for a long time, meaning that it's got a much further distance to fall.
As I said, it makes my head spin.
These people just never cease to amaze me. Are they really so unable to think? Are they so unable to grasp a time window longer than few hours or a few days?
Calling a bull market because of a "nice rally" several hours old is bizarre. Calling a stock cheap because its P/E has gone from collossally high to only gigantically high is nuts.
At any rate, the emergency Fed cut appears to have helped out Europe stock markets, which opened sharply lower, but closed 2-3% up following the Fed rate cut.
However, Wall Street is still on track in following the 1929 patterns of continual tumbles in a market most investors had all be counting on continual increases. The Dow Industrials are now down another point to 16% below their highs, or 84% of the October 7 high.
Let's speculate. 84% was exactly the point where the crash began in
1929, as you can tell from my Dow Jones historical page. Each time the market falls another percentage
point from the high, more and more investors become exposed. What
happened in 1929 when 84% was reached was that the market was at a
"tipping point," where investors were forced to sell to cover their
substantial margin calls and leverage calls. However, the 84% point
was reached after only six weeks in 1929, while it took 15 weeks in
2007-08 to reach the 84% point, which would have given some companies
more time to cover their losses. On the other hand, leveraging is
much greater today than in 1929. So who knows? But unless the
continuing market fall starts reversing itself, then it shouldn't be
too much longer until a "tipping point" is reached.
(22-Jan-08)
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