Thursday, March 11, 2010

Beware the Ides of March?

Technically speaking, the Ides of March is nothing more than a date on the Roman calendar. March 15th, to be exact. But it has sinister implications because it just so happens that the Roman emperor, Julius Caesar, was stabbed to death on March 15th 44 BC by the very senators who were supposed to serve him. It was in his play, Julius Caesar, that William Shakespeare wrote "beware the Ides of March."

[caption id="attachment_660" align="alignright" width="300" caption="The Death of Caesar"]The Death of Caesar[/caption]

So, what does any of this have to do with investing and the stock market?

I'm glad you asked.

Minyanville has an article that asks if March 2010 is going to be October 1987 all over again. For those of you who weren't investing in 1987, let me share why this is a watershed moment in recent stock market history:

Monday, October 19, 1987 is known as "Black Monday" because it was the largest single-day crash in the post-Depression era.

So, according to the Minyanville article, hedge fund managers see a crash coming....

Jon Markman of Markman Capital Insight has been talking to a lot of fund managers, and they see a lot of similarities in the way the market (S&P 500) is behaving these days and how it behaved in the run up to the '87 crash.
"Now these managers think the next set of steps would be a sharp decline on Thursday or Friday, a series of 0.5% to 1% single-day declines next week, followed by a plunge, let's say, next Friday and a crash around March 15,” Markman writes.

They have a scary looking chart to go along with this speculation.

But the managers that Markman has spoken with see many fundamental and economic similarities between then and now, so it's more than just an eerie chart they say.

Here's a list of those similarities:

  • legislation that could cause investors to dramatically lower their estimates of stock values



  • a lack of liquidity



  • a sense of overvaluation after a steady recent advance



  • revelations of a massive budget deficit



  • expectations of a sharp fall in the value of the dollar and an expectation of higher interest rates


They also interviewed Mike O’Rourke, chief market strategist at BTIG, and he sees things differently.
"He doesn’t see any indications that this stock market is ready to take such an awesome tumble.

“I see the market as in a recovery rally,” the strategist tells us. “Liquidity has slowed down and dried up, but that’s because we had a nice rally and now we’re consolidating and building a base.”

Who's to say who is right? Even Markman admits “There isn’t enough data.

Time will tell who's view is the correct one, but it's never a bad idea to nudge your stop losses up a little to act as a safety net.

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