Last Week Marked a Capitulation Low

Last week, New York Stock Exchange volume averaged over 9.3 billion shares a day, about double the normal 4-5 billion. The Dow's range was over 500 points up and down each day from Monday through Thursday, and there was a major selling panic each day, until Friday. The subsequent flight to quality drove the yield on the three-month Treasury bill down to 0.03% at the end of Wednesday! To illustrate how stressed the banking industry is, the London Interbank Offered Rate (or LIBOR), which is the overnight rate that banks lend money to each other, posted its biggest one-day rise since September 1999 on Tuesday when it soared 3.33% and hit a seven-year high of 6.44%. Just last June, the LIBOR rate was only 2.07%. Since many business loans and mortgages are tied to a LIBOR index, rising LIBOR rates can have major implications. LIBOR spreads soared last week because banks did not trust each other. As a result, chaos reigned in the commercial paper market.

What impact will last week's capitulation low have on the future of the market? Get Louis' analysis here.

by The Freshman |  09/22/08  |  Stocks: AIG, C,