Stocks and the Credit Markets

I don't see the stock market even hinting of a bottom yet. Technically, I note this -- I've been following the Lowry's statistics since the 1960s. Their Buying Power Index reflects buyer's willingness to buy or accumulate stocks. Lowry's Buying Power Index is now roughly 60 points below where it was at the August lows. Buyers would not enter the market at the August lows, and now Lowry's Buying Power figures are even lower. This suggests that buyers will demand considerably lower prices before they will be even thinking about serious buying.

Also, on a common sense basis, current prices hardly suggest that we have seen a full bear market correction of the greatest bull market in history. After all, the S&P is currently selling at 18.30 times earnings with a mini-dividend of 1.99%. These are statistics characteristic of a bull market peak, not a bear market bottom.

"There is now increasing evidence that the liquidity and credit crunch in international financial markets is back to its summer peaks of August and, in most dimensions, even worse than in the summer; financial markets are now in a “virtual panic mode” according to a market participant (as reported by the FT).

"This worsening of the financial markets turmoil has occurred in spite of the hundreds of billions of dollars and euros that have been injected in the financial system by the Fed, the ECB and other central banks and in spite of the 75bps cut in the Fed Funds rate by the Fed. This massive easing of liquidity – both its quantity and price - has miserably failed to stem a severe liquidity crunch that is now back to the summer peaks, as evidenced for example in the interbank markets – both in US and Europe - by the sharp widening of Libor rates - at a variety of maturities – relative to equivalent maturity government yields and/or policy rate; such sharp rise of spreads to summer levels signals a worsening of the liquidity crunch"

From: DowTheory