US Markets avoid crash (for now)

Today was another very long and painful day, full of surprises (bad ones only) and without a single good news:
  • The Fed said they will inject $900,000,000,000 (billion) in the banks which confirms to those who needed a confirmation that the $700 billion USD of the Paulson Plan are meaningless.
  • Major European banks collapsed during the week-end, among which Fortis (part of the Bel 20) and Hypo (which is part of the Dax 30) and many others are on the brink of collapse like Dexia (part of the Bel 20 as well) or the French bank Natixis.
  • Iceland's currency fell about 15-20% against the USD and the EUR as it is more and more likely that the country will default
  • The Japenese Yen started rallying, which could mean the end of the Yen Carry Trade with all the deleveraging that it will bring. The Yen raised as much as 10% against the Australian Dollar.
  • The USD is rallying against many major currencies (not very rational, and certainly not good for US companies profits).
  • The VIX hit a new all time high, hitting 58!
All in all, this nightmare scenario brought apocalypse on the US markets which were down as much as 7-8% before one of the biggest reversal in my short trading experience: a 5% rally in the last hour.

While this rally is not really surprising given the level of the VIX and bearishness (I would have thought that the Dow would rebound on the 10,000 mark, but fell until 9,550!! before rallying to more than 10,000) it is unfortunately base only on sentiment without any sound foundamental original. While further rally is not excluded on this basis, BofA probably broke the back of the bottom fishers (again!) with very poor quarterly results (to be discussed in the next post).

Also, governments in all countries are willing to help, and we know than they are going to do the wrong thing at the wrong time and only make things worse by willing to buy votes.

Quarterly season will probably help make things clearer as to whether it's going to go further south or start recovering. Take your side, I have already chosen mine!

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