Current Market Conditions

I believe we are in real trouble here financially both locally and internationally. Our stock market tailspin seems to be just begun. Like many Americans I am close to retirement age. As I saw my 401 invested in stock mutual funds take a major hit I pulled it out of the stock funds and put it into money markets. I believe many aging boomers like me are doing our will soon do the same thing. As I listened to CNBC today I heard many references to Hedge Fund redemptions. Having observed CNBC for many years I have learned to be leery of what they are saying. Often a message repeated is there for your thoughts to be led. I suspect the current market is fueled in part due to 401 money going into money markets. Indeed I personally got on the horn today and shared my concern to many family members and friends.

I was playing with my charting software today and found something I had not noticed yet. I suspect the S+P 500 has done a double top and is headed down from here. The first top would be the middle of 2000 and the second during 2007. Towards the end of 2002 the S+P 500 got down to around 750. I suspect 750 on the S+P 500 will give just enough support possibly for a slight bounce before it heads down from there.

If you look at a chart of the S+P 500 zoomed out you see a steady rise from the end of 1994 to the year 2000. From there down to around 750 (as previously mentioned ). From 750 up to over 1500 in Oct of 2007. From there steady down.

I am not an expert on technical analysis however the books I have studied lead me to believe the real support may be the area the S+P hovered around the whole year of 1994. Right around the area of 450.

From a fundamental view we have what has been stated to be the worst economic crises since the early 1930’s. We have only just begun. Our employment situation is going down fast. Every day I observe more panhandlers on the busy intersections here in town. The automobile industry is the next major causality. They cannot build cars to park in lots much longer. There is no showroom traffic and many of the lookers cannot get financed.

Without going into other serious areas of concern I would just like to mention. This economic problem is not anywhere near working itself out. The snowball is only just starting to get bigger. As this economy continues to erode our stock market will have a serious down trend that will not last months or even years. This bear market will last tell the end of the baby boomers. After that we will have lost our global dominance.

On October 12th 2007 the S+P 500 closed at 1561.80. There is reasonable evidence to believe this very well may have been the high of the market for decades to come.

Rick Haines

Yes, a world wide bear market we have with unprecedented volatility as indicated by the VIX being > 50.

The double top on the SPY chart that as referenced when viewing the monthly chart can be argued as such and being a bearish setup is a logical deduction.

I would argue however that we may see some support around the $75 level (bottom of the 2002 decline).

How much support, or will we hold there?

That we will have to wait and see, but minimally if I were to make a forecast, we may get a bullish bounce, if not sustained, long enough to calm the waters is my glass half full as optimistic as I can be assessment.

Time will tell.

Aspire Trader

Great post, Rick. For many years I have been aware of the demographic arguments put forward by Harry Dent and others that the baby boomers retiring poses the biggest threat to our financial future. It is a fascinating subject, the single largest percentage of the population that fuelled the last bull market with net new money for years all reaching retirement age at the same time slowly reducing their exposure and protecting their investments.

It won’t happen all at once, in fact we might be calling it slightly early, but when it does begin it will be a long and painful drip drip effect of month after month of net outflows reversing the trends of previous decades. It’s interesting then that the cause for this crisis is unrelated to the demographics as unfortunately as you suggest it is this collapse in markets and confidence that could trigger the baby boomers into action thereby compounding the problems we already face.

The moves at the moment are too large to be sustainable, the volatility will die down at some point, there will be some gut wrenching rallies along the way and we will think it’s all over, look for the signs though - bear markets spend most of their time going UP, the moves down are normally relatively short precipitous periods that produce panicky declines, the rallies are kick started with one or two day huge moves followed by long periods of steady small incremental rises that can be painfully slow (hence the spend more TIME going up) only to be suddenly and violently reversed.

It’s foolish to make precise predictions here given the volatility we are witnessing, one should be prepared for literally anything, all you can say is that whenever/if this market eventually recovers it won’t happen overnight, this is the ultimate oil tanker the world’s governments and central banks are trying to turn around and it will take years not months to undo the damage both economic and psychological that has transpired. We are seeing a reversal of the ‘all the same markets’ trade post 2003 where all assets went up, and just the dollar went down. The dollar may continue to be a safe haven for now but if one truly believes the demographic argument alone then the one country whose demographics are not aligned to the West and have a very different cycle is Japan. Short the US, Long Japan maybe the ultimate demographic pairs trade right now.

I don’t disagree with your technical analysis support points. Someone mentioned the other day about fundamentals finding a bottom in this market, as important as fundamentals are they the kind of moves we are seeing day to day 500pts up/down are not reflecting fundamentals, are the fundamentals really changing that much day to day? of course not, what we are seeing is emotion being played out in the marketplace and in such conditions a technical level carries as much if not more weight than a fundamental one.

the fundamentals (ie earnings) a year from now are so uncertain that 500 points moves are to be expected. The fundamentals only act as a guide and a boundary to price, the rest is speculation/trading etc.