DOW 4600 Projection
2oversold.com readers know that we have had a projection that DOW 6500 would need to be tested before we might see some real support for the markets and perhaps a bottom.
We also stated that we’d love nothing more than to report earlier that we were wrong and the bottom was in at a much higher level. Well today’s news is most certainly not it!
I find it very hard to believe that this would have been said from Federal Reserve Chairman Ben Bernanke but apparently it was. And it does have the market moving strongly to the upside today with the DOW up over 250 points as I blog this.
Our readers also know that recently we blogged that it was our opinion that DOW 6500 may not hold simply because the economic news continued to show that our economy was worse off than most had expected and the recession might last much longer than anticipated. This news today convinces us that this is in fact the case.
I no longer believe that DOW 6500 can hold and have an opinion that we may actually break below DOW 5000 before this is all over. Now I made a case for DOW 6500 based on my own personal experiences in the markets. I can not make such a case for DOW 4600. I was not involved in the markets that long ago. And perhaps I will be wrong….Perhaps.
I would like to say I believe today’s news. But common sense tells me that there have been no programs instituted yet that could possibly have such an impact nor have any of the bank bailouts had time to be reflected in any of the housing numbers. People are not going back to work and the unemployment numbers continue to rise with each report. Something is wrong here.
Now I ain’t a smart man and have never been a gold bug but folks I figure you will be seeing a lot more blogs and articles about the precious metals and the mining stocks here at 2oversold.com over the coming months as I believe this may be one of the few sectors that will be able to rise in the coming years.
2oversold.com is a blog for the individual consumer and private investor. We are not experts in the markets nor do we make any recommendations of any company. The companies we blog about are discussed for the purposes of this blog only and this should not be considered as investment advice.
Again, my computation of Dow Jones Industrials in Nov 08 was 5,900 but as of
last week next first intermediate low we should reach is 5,100 and after that we could
see if we reached bottom already.
As Bernanke and his call for end of this recession by end of 2009, his call could derive from stabilization price of Copper (most important metal in industrial production) in last three months, clearly from Baltic Dry Index which found bottom and now moving up as there is a revival of needs of dry bulk material transportation and lastly from latest Leading Economic Indicators turned UP. Especially LEI index predicts future economic activity in next six months.
Economic stage of activity and price level of market (Dow Jones) do not necessarily have to have the same direction. I expect because plenty dollars were effectively destroyed by existing financial crisis, we shall see lower Dow Jones and
revival of world economy at the same time. We need realize that finnacial sector
is one of other many more sectors of industrial activity.
Interesting. So would it be fair to say that individual companies from different sectors may actually bottom before it is reflect in any of the indices such as the DOW, S&P or Nasdaq?
I’m new to investing and the first to admit I don’t understand a lot of what gets talked about yet but I would like to learn. Marian, help me out here please with your comment. You lost me from the Baltic Dry Index onwards. If there’s any simpler way to explain the rest of your post, I’d really appreciate it if you could.
I especially don’t get how the markets could go one way and the world economy the opposite. Have they not been running in tandem during this mess, where when one tanked so did the other? How can one get on its feet and leave the other behind? Thanks and apologies if it’s a dumb question but I’m a beginner.
This is from one of plenty von Mises Institute essays:
“As the president signs the trillion-dollar stimulus package into law, financial networks are abuzz with investment pundits speculating on what companies will benefit, and thus what stocks should be purchased. Such analysis makes an error of causality commonly found in equities research. It assumes a direct correlation between business activity and stock prices.
The price of a stock is derived from a transaction involving the exchange of money for a piece of paper that denotes fractional ownership of a corporation. The profits of a business are a result of transactions where money is received, minus the cost, in exchange for a good. In addition, with the exception of initial public offerings and secondary offerings, the money in a stock purchase ends up in the pocket of another individual and not the coffers of the company.”
Well, I would add in short:
1. Economy - company earns money from their business operations.
2. Price of stock is mirror of future expected earnings/dividends for shareholder.
Also, banking and financial sector is one part of the whole economy. Industry business activity in general originaly was financed from savings and/or accumulated profits in contrary today’s growth financed by debt. When we unwind those debts, companies will find market price for their products and Voi-la, we have Bernanke’s Economy Revival.
Hello, whole market is showing extremely weak position just before resuming moving down again. Every sector I checked is in extreme overbought position, commodity included. $UTIL Dow Jones component is already in clear downward
direction and this one is a leading indicator for Dow Jones Industrials index for next
six months.
http://stockcharts.com/h-sc/ui?s=UTIL&p=W&yr=0&mn=10&dy=0&id=p16685446081
Notice the Stochastics did not get above 50% for $UTIL at all. Extremely weak.
Interestingly enough shares of Gold and Silver companies could be dragged down with general weak market condition too.
Hi Marian,
Always interesting reading your comments and I do agree that the overall market is showing signs of weakness. But then I am in the camp (maybe the only one in this camp) that the run back up from 6500 was a combination of the individual investor jumping in for fear of missing the bottom and the news media and big money understanding this was what was happening and keeping the rally alive with some fluff PR and news about how the economy “may” be improving.
Still not sure I follow your gold and silver analyst tho. Although I must admit you did get close there on that retrace to $850.
I continue to think we will see overall market weakness for the next 18 months at least but think gold is back on the upside trend.
On another note we have opened a discussion forum and if you would like to have a board for your commentary and market analysis just let us know and we’ll open you one or your more than welcome to do a weakly commentary here on the blog.
Just to add a note: We have created a nice little community for any investor who wishes to use it. It is much like some of the old style financial discussion sites of days gone by complete with live chat ability, community message board and individual blog space.
All investors are welcome to join : http://www.2oversold.com/forum
Tuesday Turn Around.
We shall see if this old wisdom still works. Also Coppock long term indicator is expected to turn up, it means we will have for several years market rally. Commodity market is rushing higher, though dollar is loosing ground. All those facts point to Weimar Republic spectacular rally. I doubt that so early, it will take at least one year to get money velocity to speed up and get inlation to step in. Meantime we should watch NYSE trading volume. Diminishing will be warning sign.
To Marian and others following this section,
I had made a mistake in not realizing how popular our regular forum was with the small group of user we currently have and after some discussion we have decided to create the full community based on the forum.
So hopefully we will see everyone there. I am interested in knowing what your thought are on gold right now since it appears to have bounced nicely off the $890 level and held up well today I thought. I am not a chart person by any stretch of the imagination but would like to see what your thinking is now.
I believe that gold is now headed back to test the $1000 level but of course could be wrong here. I just don’t think the economy is a well as the powers that be are trying to make it sound. I fully expect GM to file bankruptcy any day.
What is the next level for Dow Jones? Higher or lower? This bear market rally is aging and it is expected healthy correction. Level of 7400 for Dow Jones is where we are heading what I expect. Finnacial sector is leading market up and down for last 12-18 months already and this sector is showing weakness though semiconductors sector is still trying to reach new high. Tug of War.
http://stockcharts.com/h-sc/ui?s=INDU&p=D&b=5&g=0&id=p60332803837
Read this newest Moody’s yearly report on US Banks for 2009. I did not catch this report in regular media stream. It is possible you too. Read it!
http://www.thaipr.net/nc/readnews.aspx?newsid=CD4B465E4CE73AE362F95907FFAF2534