Saturday, October 1st, 2016

Market crisis 3

Last weeks upheavals were very close to what happened in 1987.  LEH bankruptcy, AIG bailout, MER buyout by Bank of America  and Morgan Stanley finding itself on the auction block. One after the other dominoes started falling, credit markets including money market funds came very close to a complete shut down. When banks cannot have short term paper, they cannot run operations and would have closed. There could have been bank runs since banks had amassed huge amounts of cash just in case on Friday. The total collapse was not very far..

Treasury secretary had the vision and started moving fast and called up his many friends and also  the Congressional leadership for a $700 billion bail out to soothe markets. On those news markets zoomed higher, but VIX ( our fear gauge ) stayed above 31 and still is as of Monday. For the third time this year, VIX rose over 35 which is an indication that a tradable bottom has been put in place.

The good news is that while last week’s madness is a rare occurrence, when it does happen, it passes quickly. If this massive bailout plan as envisioned by Secretary Paulson has to become the law of the land, you know that markets will reward us with big rallies and if this plan stalls, markets may continue trading lower again which is usually the norm these days.

The short selling rule outlawing 799 financial stocks and today’s NYSE’s ruling banning further short selling on GE and GM stocks makes it harder to pummel these markets down.  Its a good sigh of relief for the bulls at least.

Whatever the case, we shall delay setting up any options strategies and index options trading, for few days till the dust settles and things are clearer. Options trading on NDX and RUT, IWM is bit too risky. Stock trading carries a bigger risk.

Comments

2 Responses to “Market crisis 3”
  1. Неплохо конечно…

  2. Theo says:

    Great blog here with a good grammar. I recently just Jumped here from another blog, My my grammar was pathetic.. Anyway Great post

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