This past Tuesday and Thursday, stocks made another strong downside move towards the November lows. The blue-chip DOW closed within 75 points of its November low and potential bottom, and I feel that the DOW will test its low. What you want to see is buying to emerge and support the DOW around the low. The market wants to see a valid bottom to determine what the downside risk is. Without a bottom, investors are vulnerable to more downside moves, as we move through 2009 and into 2010. My view is that the DOW will likely fail to hold and could trend lower. This may not be on this attempt, but could be on future attempts. A move to the low would be bearish and could trigger additional sell orders.
The reality is that the market risk is extremely high. I have been saying this since the beginning of 2008 in my annual prediction forecast. So far, it has played out, as the current situation has not been this bad probably since the Great Depression. There are so many negative factors out there to deal with at the same time and it will not be an easy journey for the rookie President Obama.
On Tuesday, President Obama signed off on the massive $787-billion economic stimulus plan that he predicts will create or save 3.5 million jobs and turn the economy around. But I feel the road ahead will prove more difficult than Obama thinks and it will inevitably require more funds from the government. Jobs continue to be lost across America. The auto, housing, and banking sectors continue to be on life support. Without any leadership, particularly from the banks, we do not see any sustainable gains. This continues to be a trader's market where the overall trend is bearish.
As we have been saying, the U.S. and global economies continue to be in a tailspin and it will take both time and money for a reversal. China is seeing continued declines in its GDP growth and Japan, the world's second largest economy, is in a deep recession. Without a reversal in the global economies, the U.S. will likely struggle and require more funding.
Japan reported its worst GDP reading since the end of World War II and we feel the country could be on the brink of another period of deflation and long recession.
The financial sector will also be under continued selling pressure after ratings agency Moody's warned that weak economic conditions in Eastern Europe could negatively impact Western European banks. The Bank of England has asked for permission to create money.
I hate to continue to deliver negative news, but that there is little reason to be positive at this point. The stimulus will help, but it will take some time to filter through the economy. There will eventually be a light at the end of the tunnel, but, before that, there could be more suffering.
Profit Confidential
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