Thursday, March 06, 2008

Scary Charts

That the market could rally again on another rumored Ambac deal was well into the realm of absurdity. That said, it always frustrates the most people whenever possible. If the downward course were too well-lit and well-paved, there would be plenty of passengers with put protection, limiting the downside in the first place. On Monday we reached an intraday low of 1307 that was lower than the closing low of 1310.5 on Jan 22; however, there was no climatic volume or other tell-tale signs of capitulation. Thus I'm expecting more downside to come.

I found the following charts at the Financial Ninja, and they're scaring the bejesus out of me. I'm posting the first two and the rest can be found at the link above. The charts were from the St. Louis Fed and the commentary from Ben Bitrolff (aka the Financial Ninja). The first chart shows that total borrowing (by banks) is up from 16 billion in December to 46 billion in February. And if you think that is bad, look at the second where non-borrowed reserves dropped from 25 billion in December to LESS THAN ZERO! No wonder Bernanke is expecting bank failures.

At times like these, precious metals shines as a safe haven. I said before that the magnitude of the move currently underway will stun all but the most devout gold bugs. We got a flavor Wednesday when both gold and silver came back one day after a devastating loss to make new highs. That was enough to have me wading back in my trading account.