Google may be the king of the search engines but there are many other websites like Google that offer a different search engine experience. Then, in 2008, these credit rating agencies continued being part of the problem by creating a panic in the market with drastic and frequent downgrades that, while initially only affected a very small percentage of the market, emotionally put it a tailspin because everybody knew what was coming next. I present it at this point so that you can see what is happening in the stock market as the Great Recession of 2008 unfolds. It was precipitated by the rich-man’s” market crash known as the tech-bubble in 2000; neither were very large and are not covered in this book.
Looking at this formation”, which computers would have identified for them as a head-and-shoulders” pattern would have told the very savvy investor (I wasn’t one of them, I am still not) to start getting his or her portfolio ready to sell because the market might have reached its top; only might have. Partly in reaction to this and other world events, the market went into a year-long retreat and GDP stopped growing at a sustainable rate and slipped to a 2.5% range for awhile before finally falling into the massive 2008 recession.
In 2005 the market and the economy was basically flat as GDP varied between a low of 1.8% quarterly growth to 4.2% quarterly growth. The market began to take-off while the GDP struggled to keep aloft and then fails; housing starts, then housing prices peak followed by a reversal. Goldman Sachs didn’t believe the portfolios held by AIG (and Bear Stearns) were worth what AIG said they were because the housing market was collapsing.
On the one hand, we see the stock market going crazy, along with the home loan industry; billions were being make in the financial industry … but being lost elsewhere (with nobody noticing just yet). Now, there isn’t anybody who could have known at the time, but that local high followed by the local low was the left-shoulder of a Top Head-and-Shoulder formation pattern that is recognized as a rather bad sign in technical stock market analysis. Note, from Chart 8, this high was not as high as the market high on Oct 10, and, in fact, is about as high as what I identified as the Left Shoulder in the previous Aside.
Author’s note – I actually remember when the above statement and Moody’s assurances were put out.. The stock market rose accordingly the next few days until August 6 when word began leaking out that both Countrywide and Moody’s were rethinking their position. It was this announcement by the Fed and reports from Bear Stern and Goldman Sachs of beating earnings estimates that pushed the Dow Jones to its final high on October 10, 2007, 78 years and 36 days after the market reached its peak in 1929.