A Slippery Monday For the DOW

May 24, 2010

Stock markets crested four weeks ago today on April 26.  The subsequent downturn had avoided a bad Monday until today, which was good.  Several really big historical stock market crashes have clustered around Mondays.  Immediately following the bankruptcy of Lehman Brothers, the DOW fell by 4.4% on September 15, 2008, 3.3% on the following Monday, September 22, and 7.0% on September 29.  The biggest single-day decline, a 22.6% plunge on October 19, 1987, occurred on a Monday, and the Great Crash of October 1929 is remembered for a 12.8% drop on Monday, the 28th followed by a further 11.7% on Tuesday the 29th.

The last four weeks had not seen equities fall as sharply as such did after Lehman’s collapse.  Within four weeks, the Dow back then had fallen 26.0%, whereas the four weeks since April 26, 2010 has seen it drop 10.2%.  On Monday, May 3, the Dow rose 1.3%, and it jumped 3.9% on May 10.  May 17 saw the Dow edge 0.1% higher.  These increases suggested that stocks might only be experiencing an overdue correction.  A 1.2% slide today may be pointing to something worse.  While this drop is not near to the magnitude of the post-Lehman Monday slumps, let alone the above-mentioned ones in 1987 and 1929, it suggests that stocks may have quite a ways further to decline over the near term.

If the downward run eventually qualifies as a bear market (a cumulative decline of 20% or more), its onset will have coincided not with the release of data but rather after the BP oil well explosion on April 20, a G-20 meeting on April 23, and the downgrade by S&P of its credit ratings for Greece and Portugal on April 27.  A G-20 statement had backed away from critical language on Chinese currency policy.  On April 27, Portugal’s rating was cut by two notches to A- from A+, and Greece’s rating was lowered three notches to BB+ from BBB+.  The ecological disaster in the Gulf of Mexico continues to swell.  The euro since April 26 has depreciated 11.2% against the yen, 7.6% against the dollar, but only 2.9% on a trade-weighted basis.  From last October’s high, however, the euro has lost 11.1% in trade-weighted terms.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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