Click chart to enlargeAbove is a chart of the Dow. It remains trading below all major moving averages (the 200, 100, 50 and the 30), all of which are downtrending. Only one thing could make this chart any more bearish than it already is, and that's a new low.
Our recent poll on the left side of the blog screen asked readers whether or not the Dow would break its January lows this year. We weren't suprised to find that the vote was divided pretty evenly. We voted yes. Here we are, midyear, and nothing about the economy has improved since January. If anything, things have gotten worse, and the "powers that be" have no intention of providing any real relief. Wasn't it just 5 years ago that Bush passed a tax law incentivizing people to buy the largest SUV's? Wasn't it around this time that the Honda Insight (at 70mpg, it put the Prius to shame) was mysteriously removed from the list of cars available to the American consumer? Current oil prices are enough to stop the U.S. economy dead in its tracks. For all of the media coverage it's getting, we feel that we haven't even yet to scrape the surface of the devistation it will have on the bottom line of just about every company this quarter. This earnings season you'll see company after company blaming their shortfalls on the crippling price of oil. We feel that analysts have estimates too high for Q2 2008. We'll find out in July, or even sooner if companies warn ahead of time.
Interestingly enough, our recent Ag trade was profitable despite taking place coincident with a 1,000 point drop in the Dow. We've learned to not let the broader market affect our trading decisions for this reason. We just buy at the bottom of the channels and sell at the top. The actions of the broader market do not factor into the equation. Still, it's fun to guess at its next direction. And despite billions of dollars sitting on the sidelines waiting to get back into the market, our vote is that we break 11,600/11,700 this year. Perhaps this earnings season. Or when the Fed decides the rates need to be hiked because despite the election, immediate action is necessary because the inflation picture is growing desperate... to be determined.
The market's current weakness won't end until at least one major airline goes under. That's been our prediction since our post on the cost of firewood doubling this winter, and we're sticking to it.
7 comments:
When looking at your chart, 11,600 looks like a very easy target for the DOW to hit. Very easy.
And with the DOW's slow and orderly decline this time around, it will probably scrape along the bottom for a while too once it gets there.
As far as a major airline going under, my vote is LCC!
That's exactly right. The first two times the Dow reached its lows, it dropped hard and bounced off of them. This time, because it's falling from a much lower starting point, its momentum won't accelerate to a capitulation point until it's below 11,600. No doubt it won't break the lows without a very nice bounce (or two) first.
An ag correction may coincide with a larger drop in the DOW, leading to a new 2008 low for the DOW.
Hi Snot: Thank you very much for your insights! Could you draw a chart for AGU? Also, do you think SQM has more upside? Thank a lot!
AGU doesn't really follow the trend channel rules. It seems to have a mind of its own lately. We wouldn't normally buy a stock like AGU, but we know that it will just do whatever MOS, POT and CF do, so we're comfortable adding it into the mix. Here is a log chart of AGU if you're interested in seeing where it is relative to its current channel:
http://img28.picoodle.com/img/img28/4/6/18/f_agum_bd40ef7.jpg
As for SQM, it's like AGU, hard to apply any charting techniques to it. Our guess is that it's overextended and will drop along with the rest. Problem is, these stocks could all rally a little further before the hedge funds decide it's time to take them down again. Once they decide to sell, they will drop hard because they're all in the nosebleed section right now. Risk outweighs reward.
A very bearish article:
Link to the bears have left the cave article
The above linked article says the bear rally we had a month ago was mostly in energy and agriculture. Volume was light except for those two areas. The article suggests that buying interest overall was low and lots of money was and is still on the sidelines.
One message board I read yesterday gave out a hunch that lots of mutual fund managers are being forced to sell off part of their holdings as skittish investors adjust their mutuals to fewer equities and more bonds or money market holdings.
I watched two ETFs yesterday that have fairly large volume. On the ask side the lots were huge for much of the day -- 120,000, 140,000, and 160,000 shares range. More sellers than buyers, so obviously they went down. Today they are still showing large lots on the ask side, but they are about 1/3 the size of yesterday and bid lots are matching up much better.
Everyone has heard of Max Pain. Don't know how much effect it will have through the close on Friday. What is the traditional market day and week after options expiration? Will more buyers come into the market after options expiration? Or does it all depend on the price of oil?
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