Stock take

DON'T PANIC:Stocks have been pounded of late, with Tuesday's selling particularly unrelenting.

The SP 500 and the Nasdaq suffered their biggest one-day percentage declines in almost a year while the Dow fell for the eighth day in a row, making it the longest losing streak since the post- Lehman collapse of October 2008.

The SP 500 has surrendered its 200-day moving average and is now down for the year.

Europe is even worse. The Euro Stoxx 50 is at its lowest level in 11 months while the Italian stock market has hit a 27-month low. Markets in France, Germany, Spain, Sweden and Switzerland are all trading more than two standard deviations below their 50-day average – a deeply oversold technical condition.

However, even Tuesday’s hammering seemed tame compared to the volatility that prevailed in late 2008, when US indices saw average daily moves of over 4 per cent over a two-month period – over four times levels registered over the last 50 days. Indeed, the recent volatility remains below levels registered in July 2010.

Jittery as markets are, they are not yet in full-blown panic mode.

US DEAL: As markets fell last week, many cited the hullabaloo regarding the US debt ceiling and the apparent possibility of default as contributory factors.

In reality, markets never entertained the possibility of default. Credit default swaps that measure the risk of sovereign default continue to hit record highs throughout Europe. US swaps, however, never got near 2008 levels. In fact, they remained below levels recorded in mid-2010. Even AAA French debt was deemed twice as risky by markets.

Accordingly, it was no surprise that markets did not rally in the wake of this week’s US agreement. Indeed, heavy market falls indicate that investors believe that the deal “stinks for the economy”, according to Cullen Roche, founder of the perceptive Pragmatic Capitalism website.

“Only the media and the fear-mongers were focused on an actual insolvency,” Roche said.

INSIDER CAUTION:We recently covered a TrimTabs report that found that US company directors were quite reluctant to spend their own money on stock. The latest Vickers Weekly Insider Report says insider pessimism is accelerating.

For every share of stock bought by directors, more than six were sold, the report finds. That’s higher than 95 per cent of readings recorded over the last 10 years. For NYSE stocks, the ratio jumps to 13:1, the highest reading since Vickers began collecting the data in 1974.

Such readings tend to occur only after extremely strong market ascents, but the Vickers reading resulted when markets were stuck in a trading range. Company insiders are not infallible, of course, but their caution should be noted.