Posted October 21, 2008
The Down Jones Industrial Average ended 16/October/2008 on a surprising up note. This only serves to reflect the continuing confusion and uncertainty marking the trader actions at this point.
The Dow Jones Industrial Average (DJIA) continued reflecting trader uncertainty by ending on a surprisingly strong gain of 401.35 points. At the closing bell on 16/October/2008 the DJIA stood at 8,979.26 much to the relief of many stock owners. That was the good news. The bad news is this is another indication the stock market is in for a rough ride with many ups and downs that are quite unpredictable at this point.
The dollar managed to rally against the euro today as the safe haven currency. The euro was at $1.3455 against the dollar. The Great Britain pound closed at $1.7323; the Canadian dollar at $.84133; the Australian dollar at $.6857; the Japanese yen at $.0098; and the New Zealand dollar at $.6146. The strength of the dollar is due to traders seeking a safe haven currency. One of the strong points of currency trading is you can trade in falling markets as well as you can trade in rising markets.
The signs of market volatility were most apparent by the fact the DJIA had fallen by 380 points on the same day it closed by up over 400 points. Last minute trading caused the final upswing. But the fact is the earlier downswing reflected a reaction to more bad economic news in the US. The Thursday reports on industrial production had caused stocks to take a sharp downturn. The fact the market closed up does not mean it is on a long term rise. In fact, continued volatility is expected over the next weeks with some financial analysts predicting the gains of yesterday would be lost again.
Apparently the days of double digit market swings are going to be at a premium for a while. Those in the stock market need to be very brave and be willing to handle triple digit swings for an unknown period of time. The swings now are not due to panic trading so much as they are due to traders trying to figure out how to prevent further losses or how to recoup some of the losses incurred over the last few weeks. Another way to look at this is the stock market is one of the few markets open right now to investors who want to cash in.
Asian stocks, on the other hand, lost. The Hong Kong Hang Seng Index saw a loss of 4.8%. Even worse, the Japan Nikkei Index saw a 11.41 % decrease. It was the same story for European markets too. Germany’s DAX index fell by 4.91% and the British FTSE 100 dropped 5.35%.
Futures trading show there is expectation the Federal Reserve will lower the benchmark interest rate in the near term. It is currently at 1.5%. This rate is the rate banks charge each other for overnight loans. The rate cut is anticipated because of the persistent uncertainty the bailout program will actually work to correct the economic meltdown. The interest rate could be cut by as much as ½% to 1% which are cuts not even considered possible just a few weeks ago.
With a global recession in the making there is bound to be continued grim economic news for a while. It is somewhat ironic that traders seem to be getting a bit numbed over the big market swings. Triple digit point increases and decreases were front page news just 3 days ago. Today the 400 plus point decline was just another ordinary news report on the financial page.