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Tastylunch (28.58)

Are the very Indexes breaking down?



November 20, 2008 – Comments (11) | RELATED TICKERS: SPY

First of all this graph  from SlyCapital's blog is the scariest one I've ever seen, I'm no TA expert but that looks to me like an enormous double top. Absolutely huge.

If you aren't reading that blog you should. Its the best one you likely don't know about.

MarketBottom posted on that today as well. .


So apparently there are only 2938 companies left in the Russell 3000


" In fact, the most remarkable thing about the crash of 2008 has been its ubiquity. As I noted before, there are only a handful of stocks that are up this year. I just checked the Russell 3,000, which now has 2,938 stocks in it. There are more stocks in it (218) that are down more than 85 percent this year than there are stocks (179) that are up for the year. "


(bold emphasis is mine)

and the S&P 500 now apparently has as many as 100 components that no longer meet the inclusion requirements . Citigroup, GM and Aloca all may be removed from the Dow Jones.

I can only imagine what sort of shocks to the system there will be if the indexes actually act on this. My guess is they will delay acting as long as possible.

Holy Toledo

" This is not going to be a pleasant topic, but by now we are all probably more than used to unpleasant economic topics.  The Dow Jones Industrial Average may follow its trend of booting some 'former' key components.  The DJIA is unlike other index since it is a price-weighted index, so it tends to follow actual stock prices rather than market cap-weighted index levels like the S&P.  So, we have three components that are now technically at risk.  These are listed by price lowest to highest.

General Motors Corporation (NYSE: GM) is by far the most at-risk.  With a $3.00 price, that is the lowest DJIA component price now.  As you saw in the S&P downgrade of Ford (NYSE: F), there are concerns it may go out of business.

Citigroup, Inc. (NYSE: C) is next in line.  Last week it seemed fine, but now the doubt and selling has taken the financial supermarket down to under $5.00. We think this has gone way too far, but there are literally ZERO rewards for defending any companies at all right now.

Alcoa, Inc. (NYSE: AA) may be next in line, but it also has seen such a dramatic drop that you wonder how long that will last for a major industrial.  With a 13% drop again today, what is the use in defending it?  None.

If you think that bringing this up this is financial blasphemy, this just happened with American International Group (NYSE: AIG) and we speculated the same on them with a list of possible replacements.  The DJIA also makes changes and it might not just send every company to the showers based upon price alone.  We feel like the index needs to preserve some integrity and allow the market to sort some of this out, but it is unfair to expect an index to stick with companies which may not exist.

It looks on the surface like the S&P 500 has some dilemmas of its own.  Based upon market caps and prices, something to the tune of almost 100 companies might not qualify.  The good news is that there might not be enough replacements for them to get the boot.

The good news is that this causes no major problems with the companies.  At least not anything besides yet more nasty PR for the companies to deal with.

Jon C. Ogg
November 20, 2008 "

 (Bold emphasis mine again)


 There really isn't much left to be said is there? I hope you all are well.

11 Comments – Post Your Own

#1) On November 21, 2008 at 9:35 AM, 4everlost (28.89) wrote:



Thanks for the great links.  I hope that the outcome of The Game is far more euphoric than investing has been lately.  Go Bucks! 

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#2) On November 21, 2008 at 9:46 AM, BradAllenton (31.89) wrote:

That's a great blog. Thanks for the link. As far as T.A. goes. A double top has a downside target of the difference between top 1 and the reaction low subtracted from the breakout level. That would put the stupid and poor index down to about 100 if it held true. I doubt it will go that low, but either way things are fugly.

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#3) On November 21, 2008 at 11:54 AM, Tastylunch (28.58) wrote:


dang skippy. Although I hera the game has been cancelled. Michigan can't gte past Toledo. :-)


Yeah pretty dang scary of what it suggests eh?


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#4) On November 21, 2008 at 12:04 PM, MarketBottom (28.58) wrote:

Nice post, and yes that is a huge distribution top. The top is the same as overhead supply, so don't worry about being able to find something to buy. Just look up.

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#5) On November 21, 2008 at 4:38 PM, madcowmonkey (< 20) wrote:

I am hoping, wishing, and praying that OSU breaks down on U of M this weekend. I think I might be lying to myself:) Here comes the first 9 game losing season for U of M, I hate when I come back on Monday and all the employees are down in the dumps from U of M or MSU losing. If I had a tv, maybe I would watch......nahhh.


I liked the bold in your blog. It really set it off. Bring back some more tiny people and less disparing TA

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#6) On November 21, 2008 at 5:12 PM, russiangambit (28.75) wrote:

I don't really believe in TA on long time frames, like decades. TA has to do with emotions and physicology, human memory. I think it works on shorter time frames, from minutes, to a couple of years, on 10-20 years time frame - no. People's perceptions change too much in a couple of decades.

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#7) On November 21, 2008 at 9:22 PM, GeneralDemon (26.55) wrote:

Wow that is a chart to behold. Doesn't it cry out for a bounce? That drop-off is the worst I have ever seen too.

It sure looks like value is arbitrary and may only lie in the eye of the beholder right now.

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#8) On November 21, 2008 at 9:23 PM, Tastylunch (28.58) wrote:


oh goody


well it could happen, as Michigan will having nothing to lose and OSU little to gian. A dangerous situation. Of course if Michigan does win then I have the very same problem you describe, if OSU fans would be jumping off bridges if we lose tomorrow since they all expect us to win and win big....

Oh I'll blog about something different next time, you know me I jump about. Hey you know the disparaging TA might have done the trick, the market rallied pretty hard today despite all appearance to the contrary. so maybe it's not all bad?

Dude it took me months to find that pic of little people, It'll be hard to find another good one. :-)


I'm not sure I do either, but it is eerie how clear a pattern this one is. I suppose the real question is whether enough other people see this,believe it and trade off of it....


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#9) On November 21, 2008 at 9:27 PM, Tastylunch (28.58) wrote:


I don't think the market has traded on fundamentals for many months now, all fear and hope moves. Part of it due to lack of transparency, part of it significant gov't interaction and mostly just greta uncertainty in the economy itself.

It does look like we got a bounce today (I haven't the read the news so I don't know the catalyst yet {PPT? C? GM/F bailout? Options expiration?), still this  is good, since yesterday it broke through the major support line....

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#10) On November 23, 2008 at 9:35 AM, abitare (29.76) wrote:

Good post. Good links.

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#11) On November 23, 2008 at 1:40 PM, Tastylunch (28.58) wrote:


thanks. hope you are enjoying your vacation.

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