Wednesday, January 30, 2008

Preliminary Thoughts from Today's Close

Painting by John Darling Haynes.

I'll post the market close a little later. I'm not surprised by the move today. There appears to be a conflating of two things that caused the reversal.

  • Thing 1: So many of the interest rate sensitive stocks had already anticipated the rate cut.
  • Thing 2: The downgrade of FGIC today by Fitch caused a tremor to go through the financials.
There's a terrific quote from Selden's Psychology of the Stock Market that I wanted to share with you.

" Bear in mind that an item of news usually causes but ONE considerable movement of prices. If the movement takes place before the news comes out, as a result of rumors and expectations, then it is not likely to be repeated after the announcement is made; but if the movement of prices has not preceded, then the news contributes to the general strength or weakness of the situation and a movement of prices may follow. " (p. 28).
I think that we can say that we had a considerable movement in prices before this news, and a considerable movement of the number 2 variety afterwards. I love this little book.

Here are a couple of intraday charts on the XLB and the XLF:


Anonymous said...

Add this to Thing No. 2:

"Wednesday, January 30, 2008
S&P: Half Trillion in Mortgage Debt Ratings Cut (or may be cut)

From Bloomberg: S&P Lowers or May Cut Ratings on $534 Billion of Mortgage Debt (hat tip Tank, RayOnTheFarm)

Standard & Poor's lowered or may cut ratings on $534 billion of residential mortgage securities and collateralized debt obligations.
According to the Fed Flow of Funds report, household have $10.4 trillion in mortgage debt. S&P's announcement today alone is for about 5% of that debt.

Posted by CalculatedRisk at 2:01 PM Comments (3) Labels: Rating Agencies"

Care to guess the market direction tomorrow? :-)


PS: Keep up the great work Leisa

Leisa said...

Thanks Glenn....I'm pleased to say that I wrote about FGIC and the entire group last March. You can view it here: