Stock market behaviour is growing wilder and wilder. Since the end of June the FTSE 250 has dropped by almost 1000 points from 9149 to a low of 8164.9 and then rallied, in two days, to 8719.7 after reaching an intraday high of 8780.9.
The weakness revolved around the two government sponsored mortgage giants, Fannie Mae and Freddie Mac that I described in last week’s editorial as being technically bust. In the week after I wrote, Freddie Mac shares plummeted from $11.96 to a low of $3.89 and then rallied to around $8 currently.
The question now is whether we are going to look back on 15 July as the day the market hit bottom. The trading has some characteristics of an important low point. There was an element of capitulation in the preceding week’s selling. The de facto rescue of Fannie Mae and Freddie Mac by the US authorities and the fact that a rescue was needed makes this like the big bankruptcy that often ends a market decline.
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