(click on chart to enlarge for details)
CHART AU COURANT: Here is the current, bloody picture of the decline I've been warning of for the past year. This is the exact chart I published on June 2 of this year, when the Dow was at 12,500. That was titled, "Dow 12,000 or BUST" and went on to say that any break of 12,000 was the warning bell and immediate sell signal for buy and holders. On July 14th of this year at Dow 11,055, I updated the original chart with new blue vectors showing the path to 8,000 or lower that I expected the markets to follow now that 12,000 had been broken. Look at the chart above to see how closely the market is living my halucination. As you can see, here at 8579, we're approaching the next "bounce" level around 8,000. In the overnight session Thursday night, the Dow futures touched 8274. Monthly (shown), and weekly, daily, and hourly (all not shown) stochastics are massively oversold and in position for a relief rally at the least. The Dow futures are testing the 5 standard deviation level below their 200 day moving average of price (not shown), which is statistically impossible to maintain for much longer (hours/days). Finally, the 40% decline in the past year by today's closing price is just below the Fibonacci 38.2% minimum retracement level; the next most common is the 50% level, which is 7,100, the low of 2002, and the uptrend line from the 1987 low. Ironically, there are many similarities to 1987. So, at the rate of loss of the last few days, we are almost certainly within a couple days of bottoming. Worst case from here would be a down and dirty test of 6,000 +/- 300 into mid next week.
Those of you that attended my "special warning" meeting in Seattle in Fall '07 and moved to the sidelines are the happiest campers in the world. What will be know as the slaughter of 2008 continues to destroy the "buy and hold" generation, which is most of public between age 30 and 80. In 1987, the Dow lost 22% in a day, and in 2008 it lost the same 22% in the last week. Unlike '87, when that plunge market the end of the entire correction that began two months early than the October crash, this time it marks the end of the "first part" of the correction that began in November 2007, and will likely continue through 2009, perhaps longer. But, certainly is NOT ending now.
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With the Dow off 40% since its high a year ago, there should soon (days/weeks, not months) be a rally back up toward the underside of the break down level of 10,300-11,000. This rally should begin sometime around the election +/- 10 days. In the meantime, there is likely a sharp, failing rally that begins with the next few hours/days that might reach into the 9800 area +/- 300. Prior to the election however, there is still better than 50/50 odds of 7800-8100 being tested first though, with 7100-7600 a respectable possibility. Any panic under 7000 should be greeted with short term joy and bought strongly. Use the stretch of the rubberband to your advantage.
The bottom line is that NOW IS TOO LATE TO SELL. Why? Well, at worst, there is another 10-20% risk from here, whereas from here, there is a 20-30% reward in the short term, and even better reward if you can hold for 5 years, the minimum anyone should be buying and holding for (10 years being ideal).
We must expect the Fed and Treasury departments to pull out all stops to float this sinking ship. They will try to convince companies to buy back their shares; get the monster mutual funds and hedge funds to get in there and buy stocks; and secretly jump into the futures markets to try to get a massive "short squeeze" rocketing higher. They are rumored to be looking at taking equity stakes in banks and brokerages in exchange for capital, in essence nationalizing our banking system. Who knows what they'll do, but at this point, they will try everything to save the boat. In addition, the Republicans know that there is no McCain if the markets are down in the toilet at election. So, the Fed and Treasury will be pressured to do something to "put lipstick on this pig" prior to voting day, including another EMERGENCY interest rate cut.
Markets like these are brutal and make it hard for bulls and bears alike to profit. Remember, historically, after a smash like this, the first 40 days of the recovery are the best days to be in the market, which is why it's too late to step out. If you leave the party at this point, you will be unlikely to jump back in for the juicy rally. Further, you'll be unlikely to exit after 3-6 weeks of bounce and avoid the retest of the lows. Either way, the question you need to ask at this point is: "if you had no money in the market currently, would you put it in right now?" If the answer is no, then exit. If the answer is yes, then stick around.
(closed trades are always in black type)
INTERESTING PLAYS TO LIGHTEN UP ON OR SHORT SELL: Currently, there are no open short positions, which usually happens close to market lows. But, stay tuned. We took amazing profits into the Freddie/Fannie failure and will re-short on a reasonable rally.
INTERESTING PLAYS TO ACCUMULATE OR BUY: GE under 20 (entered 19.99 on 10/9, breakeven stop placed on 10/13, exited 19.99 on 10/13 at breakeven) and adding under 12, BX under 10 (entered 9.99 on 10/9, placed breakeven stop 10/14, exited 9.99 on 10/14 at breakeven) adding under 5, GS under 75 (entered 74.99 on 10/10, exited 126.99 on 10/14, +52 a share or 69% in two days) buying again under 80 and adding under 50, MSFT under 21 (entered 20.99 on 10/10, exited 25.79 on 10/14, +4.80 or 22.8% in two days), YHOO under 20 or above 22 and adding under 13 (entered 19.82 on August 11 and 12.25 on 10/10, placed 10.25 stop on 10/14 on 2nd position only), GOOG under under 310 (entered 309.99 on 10/10, exited 388 on 10/14, +78.01 or 25% in two days) adding under 230, EBAY under 19 (entered 18.50 on 10/6, placed 17 stop 10/14, exited at 17 on 10/14 -1.50 or -8% ) and adding under 12, DELL under 17 (entered 16.50 9/16, placed 15.50 stop 10/14, exited 15.50 on 10/14, -1.00 or -6%) and adding under 10, SMH (entered @ 25 on 9/15 ) adding under 21 (entered 2nd position at 20 on 10/10, placed stop at 22.35 on 10/14 for both positions, exited 10/14 at 22.35, -2.65 or -10% on initial entry, +2.35 or +11.8% on second ) , SLV under 10 (entered 9.99 on 10/10) adding under 7, SBUX under 13 (entered 12.99 on 10/6) adding under 8, RIMM re-entering under 53 (entered 52.99 later on 10/6, exited 67.18 on 10/14, +14.19 or 26.7% in a week) and add under 45, AAPL under 135 (entered 134.99 9/16) adding under 90 (entered 2nd time 89.99 on 10/6, exited this position only at 113.78 on 10/14, +23.77 or 26.3% in a week) and under 65 , INTC under 19 (entered 18.99 9/16) adding under 13. CRM under 45 (entered 44.99 on 9/29) adding under 32 (entered 30.50 on 10/10, exited this position only at 40 on 10/14, +9.50 or 31% in two days) adding 2nd pos. back under 27, RIO under 18 (entered 16.88 on 9/29) adding under 8, and PCU under 19 entered 18.88 on 9/29) adding under 8 for 50% pops. SCHN under 28 (entered 27.99 on 10/6) adding under 20. UWM under 32 (entered 31.99 on 10/6, exited this pos. at 32 on 10/14, breakeven) and adding under 22 (entered 2nd at 22 on 10/10, exited at 32 on 10/14, +10 or 45% in two days) re-entering under 18. IBM under 90 (entered 89.99 on 10/8, exited at 97.86 on 10/14, +7.87 or 8.7% ) adding under 75, and HD under 19 (entered 18.99 on 10/10, placing breakeven stop on 10/14) adding under 12. Long the Euro around 1.3450 to 1.3350 (entered 1.3400 on 9/10, stop places at breakeven on 10/12...exited 1.3683 on 10/13, +2.83 handles or $3,537.5 per contract) and standing aside for now.
For what its worth,
Ken
