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Thursday, November 20, 2008

The end is near

OK, things aren't THAT bad, but they are unfortunately, right where I was hoping we didn't go.
The market closed below my warning level of 8,135 with conviction.
That means, the DOW should lose another 400 points to hit 2002-2003 lows.
That actually very close, since today we lost 400 points, it really could be one day away from lows.

IF and this is a big IF, we close below 7,500, this is very very bad from technical stock market charts. The next stop is way lower.

So the "end is near" either, the market gets stopped between DOW 7,500-7,700 or it is financial Armageddon. (see picture at bottom of blog) The good news is if the USA collapses (DOW 2,000-5,000) then once that is complete, the bear market will be over as quick as it came. But the recovery will be a different story.

What is extremely disturbing is market rumors that the US government is buying the stock market directly, to try to prop it up. If the anyone can prove this, the market will completely come apart, DOW 5K is quite reasonable to hit quickly. And I don't even want to think of what would happen to the US dollar.

As for news, Boeing lays off 800 people, Japan's exports fall most in 7 years, Kuwait stock market closed due to panic, Credit markets collapsing in parabolic formation, and I'm sure a dozen more news worth stories could be found.

If you are in cash, great. If you have companies you would like to own long term, now is a GREAT time to buy. Make sure it's a company that you have confidence can survive another Great Depression, or atleast do well in next 6 months. If the US stock market closes between DOW 7500-7750, and you want to get back into the market, its worth the risk to put 1/4 of your cash back in. If you want to gamble, maybe 33%. But in any event need to leave room for being wrong.
Best is to buy index funds of Nasdaq, down Jones, gold miners, oil companies, natural gas, etc. The dow closing this low is now becoming "worthy" of getting out of cash and getting into the market.

If you don't want to catch a falling knife, then wait to see if the DOW goes lower then closes above DOW 8k, chances are a great time to buy for next 1-5 months. Click to see blog Smart Money for more detailed analysis.

So I'm finally relenting that index prices are low enough risk to reward makes a compelling argument to start buying for a short term bounce
(1/4 cash in the market for 1-6 months).

(Click image for clearer picture)

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