Chris Lau - Seeking Alpha

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Monday, October 06, 2008

Banking Credit Illiquidity Now Global

The illiquidity problem taking place in the U.S. has now spread to Europe. Two things now must happen for liquidity to be restored in the banking system at a global level. One: the U.S.will need to take a secondary drastic but convincing step in restoring confidence. Two: European leaders must work together (not independently from one another) to come up with a concerted effort to restore liquidity.

The chances have increased that the EU will have to lower its interest rates. The US will likely do so on Oct 27th. 

Indicators

Two things to monitor in today's markets: volatility (VIX) , and the US dollar. As mentioned in Tech Talk, capitulation has not yet been reached. The VIX spiked over 35, but volumes must be far higher than average over the next trading sessions whilst VIX settles to 35 and below.

Monitor the US Dollar, as the dollar's strength is now leading the price of commodities, namely weaker oil and gold.

Fibonacci @ 38.2% represents the support level for VIX:

USD support is @ 78.87 (not far from the 81.73 close).

Charts from: http://stockcharts.com/charts/gallery.html?$USD

Important note: support prices as outlined on the charts are very speculative. Fundamentals are poor for the global financial markets. For now, price support levels should only be used as a guide.

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