On Tuesday, the U.S. stock market experienced its first truly panic-ridden day since the current seven-month rally started, and the three major indices had their worst week since March 2003.
Market participants identified many culprits, from the Chinese stock market's 8.8% plunge, to the Japanese yen carry trade, to a sharp increase in volatility and risk aversion.
After choppy sessions following Tuesday's rout, the
Dow Jones Industrial Average
closed down 4.2% for the week, 1% on Friday alone, to 12,114.10. The
slid 4.4% on the week and 1.1% Friday and the
fell 5.8% for the week and 1.5% Friday, closing at 2368.00.
bloggers were all over the market action, and we'd like to share the best of their commentary this week with readers of the
. These posts best capture the intent of these blogs, which is to provide intelligent discussion on the issues each writer sees as most pressing that day.
Let's take a look at
on the lessons of this week's selloff,
on the future of Internet advertising,
on doing an individual systems check and
on the scrutiny of the jobs report.
Click here for information on
, where you can see all the blogs -- and reader's comments -- in real time.
Rev Shark's Blog: Heed the Lessons of Yesterday's Selloff
Originally published on 2/28/2007 at 8:06 p.m.
"Character consists of what you do on the third and fourth tries."
-- James A. Michener
The most significant thing about the action in the market yesterday wasn't the giant point loss or the intense selling -- the most significant thing was that the large drop likely signals that a significant change in character is taking place.
For months the market has been chugging along steadily, with buyers stepping up every time we dipped. Fear and worry were dismissed and the primary focus was to not be left out as an ideal confluence of economic conditions and corporate growth led to ever higher stock prices. Although the market was technically extended, the momentum stayed strong and buyers were lulled into complacency.
Some will say there was no reason for the abrupt change in market action yesterday. Others will try to blame program trading or other manipulative influences.
The fact of the matter is that it's surprising it took so long to have such a dramatic pullback. It is simply the nature of markets to do things that assure a high level of discomfort for many investors. Markets are profitable because at their core they are so frustrating. If they were predictable and easy, we couldn't make so much money trading them.
The issue for us to contemplate isn't what happened yesterday but to understand how that action will change things going forward. Every major market index suffered key technical breaches. The uptrend lines were broken and if you follow the TA rulebook that means you go to cash and sit on the sidelines.
More aggressive short-term traders are going to look for a bounce in the next few days, which isn't an unrealistic expectation given the intensity of yesterday's losses. But for the longer-term investor, the focus now turns to what happens on a bounce. The true character of this market will be fully revealed on the second and third tries at a recovery. If those attempts are turned back, we will know that things have changed and that we are likely to see a downtrend that persists for a while.
Overseas the Shanghai Exchange, which triggered this selloff, managed a bounce of close to 4% as government officials attempted to calm nerves. However, that bounce didn't spill over to other world markets. They are down again across the board although the pullbacks are milder this morning. The London FTSE is down another 1% and the German DAX 0.8%.
Early indications in the U.S. are for stabilization but we have the very important fourth-quarter GDP number coming up that is likely to cause some action. Keep in mind that many longs that were trapped in yesterday's collapse are probably looking for exit points. They suffered some psychological as well as financial damage and they would prefer safety and security; that is very likely to pressure any early bounces. A strong open this morning carries a high risk of being sold aggressively.
Cody Willard's Blog: Rethinking the Future of Internet Advertising
Originally published on 3/02/2007 at 1:08 p.m.
A friend of mine invited me to attend the symphony with Richard Edelman and his wife at Carnegie Hall last night. I was pumped about getting to talk to Richard, economic activist and CEO of Edelman Worldwide, where he's built brands like GE's EcoImagination and is currently working on marketing campaigns for
Richard's an active
blogger about new media trends and how the interactive elements of the Internet are changing advertising forever. We talked for a bit between each part of the wonderful three-part program with the Philadelphia Orchestra and shared a cab afterward. Richard told some really neat anecdotes about some of the ingenious marketing campaigns he's put together over the years.
My favorite story of the night was about how he once put together a hang gliding media event around the Statue of Liberty for a new brand of Old Spice cologne a few years back. He said the coverage of the event was huge, and how excited he was to see it all over the news that night and the next day. But a major escalation in the Middle East hit that afternoon with bombings and horrors that obviously pushed his marketing campaign off the headlines.
Hearing him reference wildly disparate marketing campaigns like that got me to thinking about how much potential there really is for marketing and advertising campaigns on the Internet. I often get asked why I think Internet marketing is going to matter at all, given how ineffective banner ads might or might not actually be. I always counter that by saying if you think banner ads are the future of advertising on the Internet, you're probably missing the future.
And that future's not just going to be about sponsorships of commercials or displayed ads in the way we currently think about advertising. No, people like Richard will take the ever-more-capable and trafficked platform of the Internet and create entirely new ways of delivering buzz to their clients and their brands.
The Internet currently accounts for about 5% of all advertising dollars in the U.S. That's only going higher, as we all know. But more to the point of this post, the Internet and all the unique platforms it provides, and will continue to provide, will help to accelerate growth in the overall advertising market.
I'm going to be doing some work on the publicly traded advertising companies, like
, as they just might be positioned for some real secular growth as we all spend ever-more-time connected to the network, and therefore provide more opportunities to be the targets of smart marketing.
At the time of publication, the firm in which Willard is a partner had no positions in the stocks mentioned, although positions can change at any time and without notice.
Steven Smith's Blog: Time for a System Check
Originally published on 3/01/2007 at 2:49 p.m.
As the markets take a breather around the unchanged line, it's a good time to do a system check.
There's been a lot of talk about the technical glitch at the
New York Stock Exchange
, which I still think was basically a delayed quote and meant little in real terms; trading was much more orderly than if it were all being done by live humans. However, I haven't heard any complaints that any brokerage firms had overloads, glitches or failures.
Before I tout this as a testament to the capability and efficiency of the electronic platforms now widely in place, especially given that extra bandwidth needed now that many options are trading in penny increments, I should ask: Has anyone had any problems out there?
In case people are answering yes, I will jump ahead on an article I'm working on (call it a sneak preview) and suggest that it always makes sense to have a backup system in the form of a second account. This is true even for non-professional or less-than-active traders.
With that in mind, there are two relatively new and private firms that cater to more sophisticated traders. One is
, which is about a year old. It has some of the lowest rates and great tools, but minimal auxiliary services.
The newest player in the house is
, which was
launched early this year and is run by option market-making and proprietary trading firm Peak6. OptionsHouse has some advanced risk-management tools, which might have come in handy the past few days, and offers an innovative flat-fee commission structure of$10 per transaction, regardless of the number of contracts. So for people who trade "size," this can be a great deal.
Also, some of the better-known names that specialize in options trading are also among the best ranked in terms of all-around online brokerage firms. These include
, the ThinkorSwim division of
, which just last week changed its ticker to the more memorable SWIM from IEDU, and the CyberTrader platform from
, which has one of the most well-rounded offerings among the mainstream names.
Regardless of your investment style or even the size of your pocketbook, it's wise to have two trading accounts, even if the second is with a $2,000 minimum, just to have a backup system in place. You never know when one might have a "glitch." But if and when one does occur, you can bet it will be at very inopportune time.
Tony Crescenzi's Blog: Jobs Report Under Scrutiny
Originally published on 3/02/2007 at 2:13 p.m.
This week saw significant impact from the weak durable-goods report, which suggested that business spending is trending weaker than previously thought. Many other factors added to the negative sentiment, including a weak report on new homes and rising jobless claims, for example, resulting in broad worry regarding the economic outlook.
In the week ahead, the employment report due out Friday could reinforce these worries, particularly if it captures the uptick in jobless claims, which have increased over the past month to a 16-month high.
There are other economic reports leading up to Friday's payroll report, but they are unlikely to have significant influence on the markets. This is unusual, since the payroll data tends to be released near that of other major reports, such as the Chicago index and the Institute for Supply Management index.
The jobs data are generally released on the first Friday of the month, but given that February was a short month and that the first Friday in March was relatively early, the Bureau of Labor Statistics decided to delay its release by a week. This "isolation" will likely cause a greater fixation on payrolls than normal.
A hint of weakness on the jobs front is apparent in the recent data on jobless claims. The four-week moving average for claims is now running about 20,000 above the average of the past year. This suggests that a meaningful deterioration in the pace of job creation may have occurred in February.
If so, and if the weakness is repeated in early April and early May, the
would likely lower interest rates at its May 9 Federal Open Market Committee meeting. If this occurs -- in other words, if the Fed cuts rates following three months of weak job statistics -- it would fit with the historical pattern wherein the Fed has failed to recognize that a recession was under way until already in the middle of it (it takes six months of declines in employment and production for a recession to be declared).
I am not saying that we are already in the midst of recession, but it is easy to envision how quickly a rate-cut scenario might develop if next Friday's payroll report is weak.
The probable market response to weakness on the jobs front is debatable. The Treasury market would almost certainly rally. Other parts of the credit markets might have more difficulties because recession fears would grow. This would reduce the appetite for risk, something that has caused great consternation in many asset classes of late.
Some might say that these worries would be offset by renewed hopes for a Fed rate cut, but it still might not be enough to calm current anxieties given that markets worldwide still have low risk premiums built into prices.