charts courtesy of www.stockcharts.com
This week saw more selling in all the major stock markets around the world. The Dow Jones Industrial Average (DJIA) lost over 500 points in weekly trade. It appears now that some margin selling is taking place as portfolios scramble to raise cash. The DJIA shows good support at its 200 day moving average. It is unlikely the market will crash this early in the season. We can anticipate some buyers to move in at the present level with a fairly good bounce back to the 50 day moving average level. That should carry us through late summer. After that we enter a dangerous time of year for the markets. There is very good support in the 14500 range. Obviously these time frames are subject to change based upon current events.
Take a look at the weekly chart for Deutsche Bank for the last 5 years. This bank is considered one of the strongest in Germany and the European economy. The stock is down 40% since the beginning of 2016. It has been absolutely crushed since reaching its high near $52 in 2014. Since then DB has lost 70% of its value. This might be related to their derivative holdings or perhaps a large amount of insolvent loans which are the result of lower commodities and oil prices. This is potentially an ominous sign for banks and may signal something more serious that has not yet come to light.
Chairwoman Janet Yellen also gave testimony in Washington this week. The Fed is looking confused and perplexed at the recent developments in the markets. "Recession is always a possibility," said Chairwoman Yellen. The Fed is now faced with potentially reversing its policy of tightening which was a bad idea in the first place. They almost made the same mistake as the 1930s when the Fed's policy of tightening helped to worsen the effects of the Great Depression. This is discussed in great detail in the book by Milton Friedman and Anna Schwartz published in 1963 entitled, "A Monetary History of the United States, 1867-1960." The book disputes the popular Keynesian economic theory that governments are needed to help the markets to function properly. Friedman and Schwartz prove that government is actually part of the problem when free markets are concerned. In a celebration of Friedman's 90th birthday in 2002, then Fed governor Ben Bernanke said, "I would like to say to Milton and Anna: Regarding the Great Depression, you're right. We did it. We're very sorry."
Disclaimer: The above is for educational purposes only. There is no intent to offend, merely to educate. Any decision to buy, sell, or hold a specific investment for a portfolio should be discussed with your investment professional.
