Last week the 20 year anniversary of the 1987 crash passed with a significantly negative close for all major stock markets.
A sell off, but it was some way off being a repeat of that day 20 years ago that wiped off 12.2% of the value of British shares in one trading session. It is interesting to note that neither the 1987 or 1929 crashes led to a recession and the Dow actually finished up for the year after the ’87 crash. Indeed as of the time of writing the Dow Jones Industrial Average is up 700% from its 87 crash low.
The Nasdaq was again the strongest market relatively (although that wasn’t saying much after Friday’s rout). Google yet again beat analyst’s estimates with increased revenue coming on steam from acquisitions such as You Tube. They now handle 57% of all web searches which is twice as much as Yahoo, their closest competitor.
Despite the strength in the new economy, the bears have plenty of reasons to fuel the selling we saw on Friday. Oil hit $90 per barrel for the first time ever, Gold continues to surge and the US Dollar hit an all time low against the Euro. Banking stocks fell hard amid concerns that the credit crunch may have even more profound and lasting effects than originally feared. Bank of America reported trading losses brought on primarily by the credit crisis. Despite soaring energy prices, it was the energy giants and oil service handlers that fell hard on Friday due to fears over future earnings. Their sector’s weighting in the main indices may have magnified the overall slump.
Two year US treasury notes recorded their biggest weekly gain since 2002 as traders priced in a 70% chance of another Fed cut while the ECB came until renewed pressure from politicians to relax their tightening bias.
For the moment though, US consumers in particular may not feel the immediate pinch of the record oil prices. Mark Zandi of Moody’s Economy.com (source CNBC) found that the current oil price is actually $11 below the inflation adjusted high of $101.70. In addition, adjusting for inflation consuming spending is 3% less than in 1980, household income up 42%, median house prices up 40% and pump prices up just 1%.
So in the short term US consumers may be able to weather this storm, but if this price pressure persists coupled with an ever worsening housing market then the lifeblood of the US economy, the consumer will eventually have to tighten their belts.
Wednesday and Thursday’s home sales data will help us see how far down the line this scenario actually is. Thursday’s crude oil inventories could have a disproportionate effect on the market in light of the current market conditions. The US market’s may bounce back in the short term as the selling pressure could be a tad overdone, but the weight of negative economic sentiment may be too much of a wall for this bull market to climb in the intermediate term. A difficult market to call.
The currency markets may therefore offer the better trading opportunity over the next week. With a 70% chance of rate cut already priced into US markets and the ECB not expected to budge this side of Christmas, there is the possibility at least the Dollar could stabilise next week against the Euro between now and the next FOMC meeting at the end of the month. According to traders at BetOnMarkets.com, a no touch 2.5 cents above the current spot price yields 8% over 7 days.
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One Touch Bet: You would buy a one-touch bet if you believe the market will touch a given point at least once before the bet expires. In other words, a one-touch pays out, if at any time prior to expiration, the market touches or trades through the specified barrier. Example: [Pays 100 if the FTSE touches X between today and date T]
No Touch Bet: A no-touch bet is the opposite of the one-touch bet. You would buy a no-touch bet if you think the market will never reach a certain level within a specified range of time. Example: [Pays 100 if the FTSE does not touch X between today and date T]
Bull Bet: You would buy a bull bet if you believe the underlying security/index/currency pair will be higher than a certain level (also referred to as the barrier level) on the maturity date. Example: [Pays 100 if the FTSE closes higher than X on date T]
Bear Bet: You would buy a bear bet if you believe the underlying security/index/currency pair will be lower than a certain level (also referred to as the barrier level) on the maturity date. Example: [Pays 100 if the FTSE closes lower than X on date T]
Expiry Range Bet: You believe that the market will be between two distinct levels (high and low) on the expiry date. Example: [Pays 100 if the FTSE closes between X and Y on date T]
Barrier Range Bet: You believe that the market will never touch two pre-determined barrier levels (high and low) before or on the date the bet expires. In other words, when you buy a barrier range you will win only if the market never touches the two barrier levels you have chosen. Example: [Pays 100 if the FTSE never touches X and Y between today and date T]
Double Touch Bet: You believe that the market will touch two pre-determined barrier levels (high and low) before or on the date the bet expires. In other words, when you buy a barrier range you will win only if the market touches both of the two barrier levels you have chosen. Example: [Pays 100 if the FTSE touches both X and Y between today and date T]
Up or Down Bet: You win if the market touches either of two pre-determined barriers before or on the date the bet expires. Example: [Pays 100 if the FTSE touches either X or Y between today and date T]
Double Up Bet: A Double Up bet pays two times the premium if the market rises above a given level between the time of purchase and the close of trading. It expires at the close of business on the day of purchase of the bet. Example: [Pays 100 if the FTSE closes above X between now and the close of trading today]
Double Down Bet: A Double Down Bet pays two times the premium if the market drops below a given level between the time of purchase and the close of trading. It expires at the close of business on the day of purchase of the bet. Example: [Pays 100 if the FTSE closes below X between now and the close of trading today]
Intraday Double Up Bet: Buy this bet to play a market rise between two given hourly market times today. You will have the possibility to set the starting hour of the bet and the ending hour of the bet, and you will win double your stake if the market follows your prediction. Example: [Pays 100 if the FTSE rises between the starting time hour and the expiry hour]
Intraday Double Down Bet: Buy this bet to play a market drop between two given hourly market times today. You will have the possibility to set the starting hour of the bet and the ending hour of the bet, and you will win double your stake if the market follows your prediction. Example: [Pays 100 if the FTSE declines between the starting time hour and the expiry hour]
Run Bets: These fun bets are over in the space of less than a minute; so you can make money in seconds. Here, you have to guess the last decimal digit of say, the USD/JPY (predict 3rd decimal place) after 5 ticks.
Are we revisiting the past?
