Make it or break it time
We are really at a very important time in the market…. truly a make it or break it moment. Looking at the weekly chart on the DOW you can see that we are in a bear flag pattern with the pole forming from 11500 to 8000 and our flag sitting at 9500 to 8000.
This is a very normal and consistent pattern. This provides a potential (although not likely) support and reversal area for the bulls. If they are going to make a stand it will need to be this week. If they aren’t able to rally and we break below 8000 then I would expect to see us continue to sell down to 5000. It won’t be lightning fast but we will get there.
Are there any asset classes out there that aren’t declining? OK, other than ammo?
Mojo
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The crash of 87 was a lot steeper and doesn't match the pattern, I would say that doesn't support either of our positions right now. The 81 recession and bear market also didn't have a flag or a consolidation period in my opinion, I see flags as a horizontal or counter trend period.
I think we are in the midst of a long term bear that started last summer ('07), and while it took a while to really get going, I think it will take a while to catch its breath before doing anything else. Though I am short term bearish and near term sideways on the US market, I am a lot more bearish on Europe, Asia and the emerging markets. Hence my large negative delta is predominately mining, commodity intermediaries, emerging markets, and banking in those countries and markets.
Naturally, I could be dead wrong. I just don't see a lot of bear markets with huge flags. I see short term flags, as we have several time recently, but I don't see flags at the weekly or monthly level at the mid-point of an bear markets. there is one exception and that is the bear market of '69-70 recovered (more than a flag in my opinion, but these patterns are subject to disagreement, and then the '73 bear hit. I blame that on the oil crisis, but it certainly happened nevertheless.
The more CNBC commentators are bearish, the more bullish I get. There were many people calling the bottom of financials a couple months ago, now they are all calling for further huge drops. That scares me as a bear into thinking we are getting closer.
Naturally, this is worth exactly what you paid.
Matt
I just know the market likes to amaze people with just how far it can go above or below expectations. Just to be perverse, I'll betcha it'll crash through 8000, drop down to about 6500 - convincing everybody that it's going to keep going to 5000, and then it will reverse and go back up over 9000 in two weeks, catching both the bulls and the bears with their pants down.
Naturally, I don't have a clue as to what I'm saying.
I think the market has already baked in a really nasty recession -- 8.5% unemployment -- 6-8% cumulative negative growth over the next 4 quarters. The auto companies are dead men walking, everybody knows it. The retailers are in the toilet. Financial services companies are on the rocks and really can't go much lower (except for JPM). The Euro stocks and ETFS, as Matt has noted, have been hammered (and may be in for some more).
In my view, the real issue is if THAT vision of what the future brings is wrong.
Suppose unemployment goes to 10%? Suppose the recession is an 8 quarter affair?
Then all bets are off, and we're down to the 500/600 range on the S&P.
Liquidity = Trust. I wont lend to you if I don't trust you or cannot assess your creditworthiness.
Citibank, et. al. after securitizing mortgages, created off-balance sheet "finance vehicles" (companies without interlocking directors) to buy the mortgage backed assets, and sell new commercial paper to absolutely everyone. This is a morally questionable practice of accepting risk and then dumping it with AAA ratings. But they dumped it first to themselves, after eliminating risk on balance sheets. Then the finance vehicles spread the evil accross the globe.
The bailout doesn't matter if it cannot restore trust. No lender can trust anybody if they cannot show that they have no buried toxic assets.
So the consensus among many is that until real transparency is enforced, across the globe, then things continue to be clogged up. All the charts scream rally, but we know that news will continue to be bad without transparency. So who would want to by equities? Check out Tim Knight's blog today www.slopeofhope.com today. Yuk.
The crash of 87 was a lot steeper and doesn't match the pattern, I would say that doesn't support either of our positions right now. The 81 recession and bear market also didn't have a flag or a consolidation period in my opinion, I see flags as a horizontal or counter trend period.
I think we are in the midst of a long term bear that started last summer ('07), and while it took a while to really get going, I think it will take a while to catch its breath before doing anything else. Though I am short term bearish and near term sideways on the US market, I am a lot more bearish on Europe, Asia and the emerging markets. Hence my large negative delta is predominately mining, commodity intermediaries, emerging markets, and banking in those countries and markets.
Naturally, I could be dead wrong. I just don't see a lot of bear markets with huge flags. I see short term flags, as we have several time recently, but I don't see flags at the weekly or monthly level at the mid-point of an bear markets. there is one exception and that is the bear market of '69-70 recovered (more than a flag in my opinion, but these patterns are subject to disagreement, and then the '73 bear hit. I blame that on the oil crisis, but it certainly happened nevertheless.
The more CNBC commentators are bearish, the more bullish I get. There were many people calling the bottom of financials a couple months ago, now they are all calling for further huge drops. That scares me as a bear into thinking we are getting closer.
Naturally, this is worth exactly what you paid.
Matt
I'll shut up now. Less posting more reading