Hey there,
The Dow finished down 508 points, 5.11% decrease! That makes around an 800 point decrease in 2 days…it could have been as much as 1300 points since the US market was down as much as 800 points yesterday. So, what happened? Part of it as to do with Bank of America posting its third quarter earnings results after the closing bell yesterday. Let me tell you…there was nothing pretty about it. BAC earned $0.15 per share for the quarter versus $0.82 per share in the year ago period and the consensus estimate of $0.62 per share. BAC is undertaking several measures to shore up its Tier 1 capital ratio to 8%. Those measures and other highlights include:
- Raising $10 billion through a common stock issuance to help Tier 1 capital ratio
- Cut dividend by 50% to $0.32 per share from $0.64 per share
- Non-performing assets at $13.36 billion or 1.4% of total loan portfolio
- Added $2 billion to loan losses
- Credit card losses climbed to $3 billion from $2 billion a year ago
So, where do we go from here…more downside or a bounce up over the next few months? My bet is on a bounce up (good for you day traders or those looking to exit existing positions) since the global markets are terribly oversold. From a technical standpoint, if you chart the S&P 500 plotted against the 20-day exponential moving average (EMA), you will see that the 20-day EMA acts as a magnet for the S&P. The index rarely strays more than 30 or so points from the line before the line reels the index back in. Right now, the S&P 500 is 114 points below the line, which is a very large difference. Consequently, the pressure to bounce back toward the line is enormous. At the very least, this chart suggests the risk of a further decline is minimal. Plus, the Fed has indicated that a rate cut is “likely.” Australia just had a rate cut and other nations are probably soon to follow. As I said, I’m betting on a rally. It may not start tomorrow. But it should start soon.
Here are some interesting articles I came across today:
- an article on what the IMF has to say about the world economy. Definitely worth a read but the outlook is not very pretty.
- an article on Richard Fuld (CEO of Lehman) getting punched in the face.
- an article on why an explosion in the price of silver and gold is imminent.
All the best,
Moolah
