Fear is out there

Citigroup share price compared to DJI end March to present

I've caught that falling knife and my hands are soaked in blood. Silver and gold are sliding gently downwards. With silver there are some support levels round about here but you have to go back to the turn of the year to find them and they aren't especially convincing. With gold I am forced by desperation to draw a Fibonacci retracement and hope that the nearby 78.6% level represents some sort of bottom. Frankly it's whistling in the dark. No question, I should have stayed away from these blessed precious metals but now that I'm in I dare not let go until the pain gets too great. And then you'll see me walk away. Or the true state of the world's economies will catch up with investors' imagination and we'll be back on our way to the $2000 level for gold.

I have taken some profits on my short S&P so I have stopped being stupid about the indices and will wait till the market reaches the top of its travel before I go short again. (See post from Tuesday when I gave myself a sharp rap on the knuckles.)

Today's chart provides a different take on the market. It compares the price movement of Citigroup, the US bank, with the DJI. It shows that investors are worried about the health of the banking sector. You could look at pretty much any bank and you would get a similar picture. Investors are shunning a sector that is vulnerable to disaster. The prospective PE for Citigroup is 6.55. I prefer to look at the reciprocal: the earnings yield which works out at 15% a colossal figure which either indicates a fantastic bargain or the fear that something terrible is about to happen. The chart shows that from May onwards investors have been dumping the stock so I put my money on the terrible option. The left hand scale shows that while the market as a whole (the thick blue line is the DJI) has fallen by 10% since end March Citigroup has fallen by 40%. Barclays RBS and Lloyds have all fallen by about 45%. Only HSBC and Standard and Chartered have done slightly better with falls around 20%. My interpretation is that the fear is out there but it is obscured by all that cash that governments have poured into the hands of speculators who are making hay. Let's pray that it doesn't all come to a horrible sticky end.

My little friend

There is a spider that sits beside me while I watch the markets. She lives on her web that is just outside my window. It seems to be a great place to live because she catches flies two or three times a day. The rest of the time she sits very still. Perhaps I should learn from her. Only move when it's worth your while. My picture is a bit fuzzy because I failed to defeat my camera's automatic focus which looked at the window and not the spider. But she's a good friend.