Loading ...That is probably the question on every traders mind today. In a free market, the answer would have been easy. The economic collapse would have been more severe, the DJI would have been trading between 2,000 to 4,000 and government would have been taking drastic measures to start creating jobs and helping small privately owned business. At those levels, all the companies that were poorly managed would have ceased to exist and only healthy companies with real profits would have been left.
Instead, companies like Goldman Sachs who orchestrated the financial collapse for its own short term profit got away with billions of theft. The survival of a company depended on bad attributes like what connections did they have in government or if they were too big to fail. Now, all I see is a bunch of overvalued, poorly managed, dead man walking companies who are nothing but dogs…woof woof…
Using reason, I would say the market would go lower from here and test the new lows during next earning season. BUT that’s not what I’m saying is going to happen. Simple truth is the market will do whatever Goldman Sachs and their partners in coercion (the other market makers) want it to do. They have the means and capital (never ending borrowing supply at 0.25%) to bring the market to its knees or to new record highs.
When I look at the 3 month Tech chart, it is clearly a bullish chart. Its lots of new short term highs with higher lows. This means that the market itself is technically still bullish. Yup, I hate to admit it, but that’s what the tech chart says. But here is the caveat; at 8,800 is tons of resistance and the chart points to a small correction at least back to 8,400 the next week. The 6 month chart is less bullish; market went down hard for 6 weeks early this year and it has taken 19 weeks to get back near its level. This tells me the confidence of the market crashing is much higher than the current confidence for the market heading hire. So from that chart I would venture that the market will go down to 7,400 again before heading higher.
The last force that I’ll discuss is the overall economy itself. It is said on Wall Street that the market looks six months ahead on the economy. I’ll partly agree with this because in terms of the market going up, it’s often true. But when it comes to going down, it is completely wrong. Markets hardly ever predict corrections; they go down a lot sooner and faster than they go up. No economist will disagree that the US economy is still getting weaker. We are also near Hurricane season. In addition, there are hints that emerging markets and some other Scandinavian countries will recover from this depression sooner than we in the US. Our government has also admitted that it will need to spend trillions of additional dollar to create the much needed jobs for a real economic recovery.
Taking all this into account, I would recommend a market neutral strategy that should be cloaked from the affects that market manipulation will have on your investments. I would recommend going long commodities (especially oil) and companies like PBR, KO and SJR for the weak dollar play. At the same time I would be short homebuilders (LEN, CTX, and KBH), and retail construction companies because of the inflation headwind and probably increase of rates. This way, if the dollar gets strong, its because the economy is getting much worst and rates went much higher, crushing the homebuilders and construction companies. However, if the dollar gets weaker to stimulate the economic recovery, you’ll catch the spike in commodities prices. At the same time, if a hurricane is off the gulf coast, you can have a little something to cheer about to offset the misery that it will bring.
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