Afternoon Update: 2011-08-15

Happy (Indian) Independence Day!

If I were a stock, you could have sold me short last week and made a lot of money. 🙂

Seriously. The markets worldwide appear to have stabilized after last week’s wild gyrations. The impetus has been a) short selling ban; and b) purchase of bonds worth nearly 24bil Euros. Most of European indices rallied 10-12% from bottom in just 3 trading days. At its low low last week S&P 500 hit almost 19% correction before rallying nearly 100 points or 9%. That is 9% rally in less than 3 days.

At this point, both Europe and US have retraced more than 50% of the decline to trough. Usually 50% retracement against the primary trend is common. The biggest concern should be the speed with which all this selling and retracement has happened.

Elsewhere, there are rumors that last week wild swings wiped out many hedge funds and today’s Google’s 60% premium bid to MMI has left a few hedge funds sitting one more than $200 mil losses. Expect news confirming these rumors soon.

To the best of my knowledge, wild swings like what we saw last week (DOW: down over 600, up over 500, down over 500, up over 400, and up over 120)  happen at a) major bottoms; b) major top; or, c) just prior to a huge move. Take your pick.