In my last post during the weekend I mentioned that the next leg down could not be too far away.  Monday started off with a significant drop an all markets.  The question then was, would there be any follow through as past attempts to correct have been short lived?  The US market has now dropped three days in a row – 300 down on the DOW – but yesterday was almost a pause day with a drop of only 21 points on the futures. Has anything changed to make this the start of the next down leg? 

I would suggest a bit of caution.  The bulls will be reluctant to throw in the towel.  We are approaching the end of the quarter, so the fund managers would dearly like to keep this market at this level or higher until the end of the month so that their end of quarter figures look good for the market.  In addition June futures and options expire on Friday. This event can  lead to an increase in volatility as market makers try to move the market to their advantage for the expiry.

The US dollar has weakened against most currencies. It took $1.43 to buy a euro on the third of June, then the dollar strengthened a bit after being talked up by all in sundry, including Russia.  Still the average now is close to $1.40.  I still think there will be fall out from the Chrysler and GM bankruptcies where unsecured creditors have been put ahead of secured creditors. 

Banks worldwide have been increasing the mortgage rate citing the high cost of money!  US banks that took TARP money in the crisis are keen to pay it back to get the government “off their backs”.  “How dare the government limit how much we can take out of the system”.  So in their efforts to raise billions to pay back the government money is suddenly more expensive.  That’s my theory anyway.  Even in Australia banks are increasing the mortgage interest rate saying the money is more expensive.  We pay more in Australia because banks in America want to pay back their TARP.

As to where the markets go from here we will have to wait untill next week to see if there is an effort by the fund managers to “window dress” the end of quarter result.  But once the Quarter is finished, then as one commentor said, all bets are off.