On the television sitcom Sanford and Son protagonist Fred Sanford, played by veteran comedian Redd Foxx, would clutch his chest and say, "This is the big one! You hear that, Elizabeth? I'm coming to join ya, honey!" faking a heart attack in key dramatic moments, often when he was shocked (or cornered in his scheme) by unforeseen events.With regard to the US equity markets, we're sure that many a punter had that same thought cross their mind when the major indices failed at overhead resistance, fell down to support, and then broke further plunging hard into the close. Is this it? Is this the big one?
The markets took three hard body shots today. First, the pending home sales number came in at a negative 2.6% this morning, on top of some truly gruesome financial results from KBH homes. Secondly, a rumour swept the markets today that Countrywide Financial, prince among subprime mortgage companies, was going to be in bankruptcy because of a capital funding crunch, taking CFC down another chunk in the 80% drop it has seen since its heyday last year. At one time CFC was even one of the primary dealers, those anointed among financial institutions on the best buddy list and elite crew that borrows directly from the New York Federal Reserve. Third, and taking down the markets to
the floor, the esteemed CEO of AT&T, Randall Stephenson, told a group of investors that "ever since Q3 ended, the company has seen an up tick in non-paid disconnects in both broadband and traditional access (wireline) subscribers. Mobile is still growing strong—people aren’t canceling their cell phones just yet—but the market is obviously spooked."Well, anyone who doesn't think the US housing business is in the tank has been on an extended vacation from reality. And although we don't know that CFC will be declaring bankruptcy anytime soon, with an 80% haircut in their stock in less than a year, what does it matter? They are dead men walking.
The AT&T news was a bit much, not so to hear that AT&T is struggling with their consumer business, but rather that consumers are hitting the wall with basic phone services, although we suppose a phone isn't viewed as the necessity it used to be. If it had been their mobile business that was tanking, then by God we might have seen the Crash of 2008 today, since all those
texting youngsters would have undoubtedly been responsible for bankupting their poor parents.We don't know if this is the big one or not. But as usual, we think we know what to look for, and have a couple charts to illustrate our signposts. The first chart is the long term weekly chart of the SP 500. Since this reflationary reinflating of the stock indices began in 2003, the SP 500 has not broken the 100 week moving average on a weekly close. Not one time. Ok, interesting, but not decisive.
We also like to watch the cumulative measure of NYSE Highs and Lows, as illustrated in this next chart. As one can see, the 360 day moving average has proven to be a reliable indicator of trend changes in the SP 500. Again, there is
nothing written in stone, but if we get a confirming break of the moving average by the highs and lows, together with the break of the long term moving average by the SP500, then the probability becomes very high that the market is at a key turning point, and a new bear market has come back to town.One of THE most reliable indicators of recession, hardly ever without fail, is that shortly before a recession formally commences, the stock market will have a 10+% correction. Further, the stock market will reach a clear trough and
begin to rally before the recession is over. Well, we're there, on the 10% correction at least. Now we'll have to see how deep this rabbit hole goes. Is this IT? Maybe, if IT is a bear market. Probably not, if IT is a market crash. Big crashes are always very long odds. But with the financials leading the way lower, and the dollar following, its a bit dicey. If corporate bonds join in to this fun fest, we'd keep in mind another of Fred Sandford's familiar sayings: "Beauty may be skin deep, but ugly goes clear to the bone."
