Despite of tremendous hot money in the financial market, trading activities remain low in equity stock market. The European sovereign debt fear drives capital to safer bond market. On the other hand, market participants are overall low in equity stock exposure. Therefore, even traders and market manipulators have been selling the market down towards the bottom level in last year, institutional and individual investors do not follow in panic selling.
Market sentiment is pessimistic for investors and speculators contribute to the majority of trading activities. As a result, stock price is falling on impulse selling and is lack of buying support. Market participants are watching the portfolio shrinking in value but remain calm as the major investment component is either cash or equivalent, or the relatively safe treasuries and bonds.
From the point of market valuation, shorting stocks at current level is risky because the investment return is comparatively higher than other wealth assets. While market money is crowded in the fixed income market, it is not easy to create herd of selling to move market during trading session. Therefore traders and market manipulators use economic news to create jumping gap between sessions.
Unlike panic selling in last year, market manipulators do not have large short positions but use derivative products to speculate market movement. As fear among market participants escalate due to Euro zone crisis, investors are reluctant to increase stock holding in portfolio currently. On the other hand, as personal wealth grows, especially among the wealthiest individuals, the sideline money for potential bargain buying if market shows sign of bottoming would attract capital inflow into equity sock market.
It appears that market is following a repetitive pattern of peak and trough. Market starts to rise slowly and cautiously on investors pessimism. After the peak is reached, market then drops on unfavorable news and herd of selling and profit taking. In previous cycles, individual investors suffer the most as they sell high and buy low. In this cycle, individual investors have learned not to sell low but waiting to buy lower with the pile of cash on hand. When traders and market manipulators speculation end with market stabilization, it would be time for long term investors to enter the market. There is likely no short covering rally as few market participants including traders and market manipulators have heavy short positions. When speculative selling disappears, trickle buying would buoy market until smart money starts to push market higher.
Market is forming the bottom. Traders are looking for the timing to close short positions and take profit while cash holders are looking to buy for bargain. Although market is oversold, buyers are still very cautious and afraid of possible market collapse due to major event. Market participants are waiting for the signal which drives the herd from waiting to make purchase decision.
Housing Has Already Reached the Inflection Point: McBride
Tuesday morning, S&P reported that the Case-Shiller Home Price composite indices "posted their lowest levels since the housing crisis began in mid-2006." The National Index is off 35.1% from the peak in Q2 2006, and the 20-city composite index is off about 35% from the peak in early 2006.
At first glance this seems like more of the same, with house prices continuing to decline. However, the March Case-Shiller index is released with a significant lag to current prices, and there are several signs that prices may already be at or near a bottom. Wednesday's report from the National Association of Realtors that pending home sales fell 5.5 percent in April does not change this view, as this is just one month of data.
There are still downside risks, especially from the large number of properties with seriously delinquent mortgages. Lender Processing Services (LPS) recently estimated that 2 million properties are still in the foreclosure process and another 1.6 million borrowers are 90+ days delinquent. However, these properties are concentrated in a few states (mostly judicial foreclosure states with the exception of Nevada), and even with the mortgage servicer settlement, the resolution will take time since the courts are backlogged. So there probably won't be a "flood" of foreclosures in those states, just a steady stream.
Money flies out of Spain, regions pressured
Spaniards alarmed by the dire state of their banks are squirreling money abroad at the fastest rate since records began, figures showed on Thursday, and the credit ratings of eight regions were cut.
Spain is the next country in the firing line of the euro zone's debt crisis, with spendthrift regions and shaky banks threatening to blow a hole in state finances and pushing funding costs towards levels that signal the need for a bailout.
Bank of Spain data showed a net 66.2 billion euros ($82.0 billion) was sent abroad last month, the most since records began in 1990. The figure compares to a 5.4 billion net entry of funds during the same month one year ago.
Big Three auto sales roar in May
The top U.S. automakers continued their recovery in May, with all of the Big Three on Friday posting double-digit sales growth with the help of brisk demand and somewhat looser consumer credit.
“In spite of a tremendous amount of global economic uncertainty, the U.S. new vehicle sales industry continues to power ahead,” said Reid Bigland, president of the Dodge brand and head of U.S. sales. “Our May sales . . . represented our 26th-consecutive month of year-over-year sales growth.”
He added that the company is also “in the process of adding production capacity as quickly as possible to meet strong demand for our products.”
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