As stated in a previous post, the Dow Jones Industrial Average has stayed in a very consistent up-down cycle for the last few months. It goes up for a day or two and then loses those gains in the next day or so. In the last three days it has also kept a similar pattern; it was dramatically down on Monday, slightly up on Tuesday, and then way down today.
So what’s to expect?
If you simply follow the chart, we could see a slight rise in the index. This could be derived from positive news regarding Morgan Stanley’s talks about being acquired or maybe Washington Mutual being bought out. However, with the current market conditions, it’s very risky to take that position.
Market movement tomorrow is going to come from news about Goldman, Morgan Stanley, and Washington Mutual.
First, Goldman:
Goldman’s default insurance costs rose to $500,000 a year, up $80,000 at Tuesday’s close, according to data from Phoenix Partners and Markit Intraday. The swaps were trading as though Goldman were rated Ba3, a junk level that is nine steps below its actual rating of Aa3, Moody’s data showed. (CNBC.com)
If this means anything, it is that investors are worried about Goldman’s situation and are going to be betting against it again. Therefore, Goldman’s shares are likely to continue to slide tomorrow. The only thing that could save Goldman from this fate would probably be some sort of news about merger/acquisition talks with some commercial bank. However, I believe that is not likely to happen tomorrow which would create another 10% or so decrease in the stock price.
Then we have Morgan Stanley:
Morgan’s swaps were also trading as though its debts were rated deep into junk territory at B2, or 10 steps below its actual rating of A1, according to data from Moody’s Investors Service’s credit strategy group.
So investors feel the same about MG as they feel about Goldman. MG is currently in talks with China’s CITIC, which could take off some downward pressure on the stock. However, if the talks do not lead to a deal, be ready for a landslide.
The moral of story is that Wall Street has made up it’s mind about investment banks after what happened to Bear and Lehman. It seems that these banks need to be in conjunction with a commercial bank of some sort. Hence, until these big investment banks find some buyer, speculators are going to drive down their stock prices everyday.
Lastly, there is Washinton Mutual:
Until it finds a buyer, expect lower stock prices.
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