We love patterns!
Pattern recognition is the basis for human thought so it’s always fun to look at charts like this one from InTheMoneyStocks and think we may see something we recognize. It’s interesting that looking at some of our other PSW Chart School posts from the weekend that look at virtually the same charts but spot different patterns. Fallond, makes a convincing case that we have confirmed sell signals and Corey at Afraid to Trade also feels we’re in the middle of our correction.
MarketTamer is looiking for Dow 9,750, which is the middle of our worst-case targets at around the 10% rule, something I touched on in my own Weekend Wrap-Up, where I did my own humble best to paint a picture that says 1,000 words. Fortunately (although maybe not for you!), coming up with 1,000 words has never been a problem for me so I will stick mainly to the Fundamentals, thank you very much!
I did some soul-searching on the situation in Greece, as outlined in our Weekend Reading post and I am comfortable with last week’s gut reaction that we have now adequately priced in both Greece and Portugal’s problems. Our outlying concern is a spread to Spain, Italy and France, which I don’t believe is likely as the cost of bailing out Greece, Portugal, Spain, Italy, France, Turkey and the UK would not even be what the US spent to bail out AIG. The same way we gave the hyenas a bone back in November of 2008 and they attacked any financial institution that showed even a hint of weakness, the pack is now all over any country that is vulnerable to panic. It’s a simple game, short the bonds (sell bonds at low rates), drive rates high, buy back the bonds, collect high yeilds.
Sure the fact that this sort of activity can disrupt the lives of millions of people might give some people pause but I’m sure someone like PimpCo’s Mahamed El-Erian feels like he’s doing God’s work when he is done loading up on bloated rate bonds and then suddenly announces, as he did this morning (and we predicted he would last week): “The risk of Greece defaulting is low.“ El-Erian said that, although the Greek government is in need of external financial aid, it likely will not default.
Oddly enough, it was just this past Thursday that PimpCo’s Michael Gomez said: “Stay away from the Euro” which (funny coincidence) drove Greek bonds and CDS swaps to record levels at the same time his boss decided to buy them. And let’s not forget Big Daddy Bill Gross’ “Ring of Fire” commentary that started this whole ball rolling downhill two weeks ago. And, of course, PimpCo consultant at large Alan Greenspan was on TV this weekend talking the book as well.
