Dow Slips Below 12k on Whatever Random News

Wed, Jun 18, 2008 | Jared Woodard

Market Commentary

We got a round of the correlation game started this afternoon, but it went nowhere fast: either headline writers are getting smarter, or today’s action is just too tenuous even for them! We realize we’ve never codified the rules of this game before, so:

  1. Get your officemates or pals together, and visit the financial homepage of any mainstream media outlet. Y! Finance, Bloomberg, even CNN Money will do.
  2. Scan the top headline.
  3. If the headline makes a dubious assumption about causation, everyone take a drink (if you’re at the office with pals, shots of espresso or cans of Diet Coke or whatever will do).
  4. Move to the next headline, and repeat.
  5. The last person in their chair wins (if you’re playing the safe-for-work version, it’s the last person to run to the bathroom, I suppose).

Sometimes the staff writers get clever with the prepositions, substituting an “as” or a “while” for the standard “on” or “amid.” Common example: “Dow slips 200 points on inflation fears.” Today, we were met with the less glaringly absurd “Losses on Wall Street accelerate after crude prices reverse course and jump more than $2.50.” See, if the crude rally temporally preceded the market selloff, that sentence isn’t actually false, even if it still implies causation. Via the AP, Yahoo! Finance takes a broader, “everything but the kitchen sink” approach:

Dow Falls Below 12,000- AP
Stocks tumbled Wednesday amid renewed concerns about the financial sector and after FedEx Corp. warned that weakening demand and surging fuel costs would weigh on fiscal 2009 profits. The Dow Jones industrial average fell below the 12,000 mark for the first time since mid-March.

See, “concerns about the financial sector” can include everything from that dour RBS memo to the Fifth Third Bancorp mess, to the Morgan Stanley disappointment. Toss in the FedEx news, tag the oil meme, and your scattershot is guaranteed to hit the cause of today’s selling in there somewhere. Assuming there is a cause, that is. Nevermind that correlation is not causation.

P.S. The Associated Press has adopted a boneheaded policy regarding quotations and links by bloggers. To that end, we’re quoting their story but not linking to it. This is the kind of nonsense we’d expect from the RIAA or the MPAA. If the decision was rooted in the AP’s desire not to be made fun of by bloggers, we humbly suggest that a better solution would be for the AP to hire better (read: actual) investigative journalists.

Reversal Readings

Short term oversold readings are picking up here; the Dow in particular looks totally determined to channel its way down to a retest of the recent lows. We’re obviously plenty happy about the uptick in implied volatility, and will resume selling July premium shortly.

Remember, these are just some of the RSI(2) readings from the universe of ETFs we scan, no big deal.  Above 90 is overbought, under 10 is oversold; above 95 and under 5 might perhaps maybe be trade-worthy.  But as the man says, the market can remain irrational for longer than you can remain solvent.

DIA – 3.36
SPY – 4.87
QQQQ – 12.00
IWM – 14.10
XLE – Energy – 97.59
XLF – Financials – 7.34
XLV – Healthcare – 6.55 (seems like healthcare is perpetually on this list)
RTH – Retail – 4.90
GLD – Gold – 98.63
DBA – Agriculture – 98.01
EWW – Mexico – 1.44

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More

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