A few weeks ago, he predicted the Dow would drop to 10,428, which it did. Now, he told me by email, "the rally that follows will be brief, and then lead to another leg down to 9,673 and further."
"Lows are not to be expected until 2012," he concluded. "Next month is critical. If we break the low of August in September, there is worse to come."
Mark Arbeter, the chief technical analyst of Standard & Poor's, said back in May and June that the bull market was probably over, as I reported in this column. He hasn't changed his position.
By email, he said he "would look for some stabilization and a potential short-term rally now that the S&P 500 has fallen into a major zone of chart support . . . between 1,023 and 1,128."
Ultimately he thinks the S&P could fall to 1,020, or maybe as low as 935. That would be 15% below Wednesday's close, and would definitely mark a new bear market.
Michael Kahn, who writes the Getting Technical column for Barrons.com (subscription required) and the Quick Takes Pro blog, has long argued we're in a secular (long-term) bear market, and he thinks the cyclical bull is over, too. Like Arbeter, he sees 1,010 to 1,050 as the next level of support for the S&P, and below that, 930.
"I think it stops at 930 to make the 2000s-2010s follow the 1970s very closely," he wrote me by email. That's one decade for which investors have little nostalgia.
The technicians are unanimous that stocks are going lower, though some are looking for a strong rally that goes against the bearish trend. Arbeter doesn't expect that rally to go much beyond 1,250 to 1,260 before it sells off again. Sneddon thinks it won't bounce much higher than 1,200.
"We've clearly seen a lot of technical damage done in a lot of markets," he told me. "I would be personally (inclined) rather to lighten up and reduce my positions" on rallies.
That would be my position, too, if I hadn't already taken profits and sold what I wanted to a couple of months ago.
Beware if you're buying
If you missed that chance, I wouldn't sell in panic now, but would wait for stocks to mount a rebound to sell off positions in riskier small-cap stocks (which already may be in a bear market) and emerging markets, whose time in the sun has come and gone. That also may be a good time to permanently reduce your exposure to equities.
But I certainly wouldn't buy into a market like this with all its wicked swings and uncertainties. Even mighty Goldman Sachs Group (GS, news) lost money on 15 trading days in the second quarter! And John Paulson, the hedge-fund genius who masterminded "the greatest trade ever" by shorting subprime mortgages, has lost 31% so far this year in his largest fund.
If people who have the best information and technology are losing money in this market, do you really think you're going to beat them at their own game?
There will be a time to buy again, but it's not now. This market is heading lower.
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Caution: Stocks heading even lower
So does this imply that drone fund managers will continue to drive U.S. Treasury prices even higher? I hope so. I hope these broken financial markets drive the 30 year bond yield below 2%. I’ve got more to sell by the end of the year. And if that happens, I bet the Chinese will be thinking the same thing.
David Sneddon, the head of technical analysis research at Credit Suisse in London, said the 1,370.58 intraday high in the S&P we saw on May 2 was the likely top. There's critical technical support around 1,100, which is just about the point the market rebounded this week. So far, we seem to be holding that.
It was at 1120. Get it right. It bounced immediately intraday 3 times off that level.
And the chartists should well recognize the 1160 level. Which even though the S&P closed lower than that twice, has basically fought to keep above that level and even closed above it.
1160 is the current immediate resistance, with more around 1120. The next after that is 1060 and 1020, followed by 900 and the bottom in 2009 around 670.
There's a lot of reason to believe this is more similar to the flash crash in 87 than the August/Sept/Oct 2008 market. You've got bad news, but there's no real current financial collapse, unlike 2008. When you had Lehman and actual defaults happening left and right.
Most of the banks, crappy as they are, have repaired and improved their balance sheets (thanks to massive amounts of cheap money from the Fed). The leverage isn't the same as 2008.
The one major outlier is soveriegn default. However, the situation on derivatives and CDOs on government debt, while largely unknown, is likely to be far less than it was on mortgages. For the simple reason that Treasuries aren't invested in for returns. They are invested mostly for liquidity and protection, not to be used as leverage as mortgage debt was (because mortgage debt advertised 8-10% risk free returns, no big gov advertises that in treasuries, not Japan, US, Germany, UK, etc)
Add to that we have an obvious disconnect between the S&P and western economies. If you're investing in the stock market, first thing to realize is it's far less dependent than any time in history on the actual state of the US economy. Over 50+% of US company earnings come from developing countries and economies. Earnings (as manipulated as the stock market is) are a large driver of prices and thus the market level of the S&P.
So mentioning the state of the US economy as a factor in the S&P is less of a factor than in the past. Surprisingly, many analysts seem to have completely overlooked that fact because the S&P 500 is a US Stock Market. But INO (in name only).
I fully agree. Except that I also see this as a Japan II where a stagnant economy lasts for 10+ years and stocks lose ground in slivers and gnat size bites until we're all so weary that we start spending again simply to feel better. And it becomes global in scale. It won't last forever, but 25 years is not unimaginable either.
Really, when you read about the new( not so new, germany did in in the 20's with disasterous results ) Quantitive Easing, think of Poker and the term Bluff. QE is the act of saying their is a lot of money, none in fact, just creating it out of thin air. Mr. B. The expert of lie manipulation. I don't blame the markets for tanking. Go to your bank and get your money if you really have any. Mr B doesn't want to print any, so he tells everyone to tell everyone else there is plenty. Crapolla is BS. Wise Guys all around, and no real law, just tricky dicky.
Why people continue to predict ups and downs with such apparent confidence is beyond me. The fact is stocks are much cheaper than bonds and are now approaching very low historical PE levels. .
Many of the reasons listed in this article for the markets to go lower are already baked into stock prices. I agree this market long-term in going nowhere but there is plenty of money to be made playing the market between now and then. If you sell now, you miss one of those opportunities. Perhaps a 8% - 10% run up over the next three months.
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[BRIEFING.COM] The stock market began the new trading week on the defensive note with small-cap stocks pacing the retreat. The Russell 2000 (-1.4%) and Nasdaq Composite (-1.1%) displayed relative weakness, while the S&P 500 lost 0.8% with all ten sectors ending in the red.
Global equities began showing some cracks overnight after China's Finance Minister Lou Jiwei poured cold water on hopes for new stimulus measures. Specifically, Mr. Lou said the government has no plans to change ... More
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