Larger Perspective on Current Stock Market Fall

I wanted to bring up a few things about the current problems in the stock market. The near term target is now 6000 (see my previous posts in the Market Blog category).  If we pan out to a very long term view of the indexes, both the S&P (1950-now) and the Dow (1930-now) we see the major trends both coming in at around 4000 on the Dow and 400 on the S&P.

Do I think we will go that low?  Well, I am not going to make that call.  But that is the very long term trend line support.  And just like the Nikkei traders, discussed below, who never thought they would be selling at current levels, the possibility is very real that current market participants will be selling at seemingly illogical levels in the not too far future.

If we look at the Nikkei, that market has been falling for the last 19 years.  From a high of around 40,000 in 1990 to around 7,500 currently!  One of the world’s “Super Powers.”  Many initiatives were thrown at that market, and they have failed.

The current initiatives thrown at the markets are also failing.  It was pointed out that banks being bailed out by these plans are viewed as high risk, and who wants to invest or put their money in a high risk bank?  These banks that are being bailed are going to find it very difficult to raise funding.  So if the purpose of bailing a bank out is to help stabilize it, and the very act of bailing it out gives the perception of instability, how can this work?

The point is, in bear markets, when things seem they can’t get any worse, they often do.  And then when everyone has given up the market will rally.  But currently there are a lot of people saying “buy, buy, buy, great deals, great deals!” as the market continues to make new lows.

I don’t personally like sentiment indicators, but I do think that in a strong downtrend like this, the bottom will come only when everyone  backs off and says “no more bailouts, and no more buying”.  At that point the market can see the impact of what has been done, it will have been priced in (for lack of a better term – the whole “priced in” theory is a little misleading) AND THEN buyers will step in in force because they actually have some concept of what values are.  The more money that is thrown at this problem, the harder is to gauge the impact, and in uncertain times the masses aren’t going to step in when the government and Fed are themselves showing panic.

I am not out to fear monger or make people worry even more than they already are about their financial future.  But living in this moment we have to look at the current market, and all I can say, as I have been saying for over a year now, DO NOT BUY, yet.  If there are deals today, and I am sure there are, in this market they will still be there in a little while.  No point jumping into a fire to grab gold nuggets, when you can simply wait till the fire goes out.

~Cory Mitchell