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HAVE WE BOTTOMED YET? Market Pulse I got a lot of emails protesting the absence of this weekly newsletter for the past month. However, before I went on hiatus I gave you all investment advice you really needed. Here is what I said on the Oct 24 edition: “My bottom line is that it may be a little too early to jump in this market with even one foot. The best way to make money in the stock market is not to try to pick tops or bottoms. Rather, it is to leverage the meat of the market move once the trend is been established.” I also got a lot of e-mails protesting that little piece of “stay on the sidelines” advice as there were a lot of folks out there who thought a bottom had been reached. Au contraire mon bozos. The bigger picture here is that it is just plain foolish for any trader or investor to try to pick a bottom. As I said in the earlier quote, the best way to make money is on the meat of the move once the trend has been established. So far, no new upward trend is even remotely on the horizon. So enough of my lecturing. What you really want to know is whether a bottom has been reached. I get that. The real question you are asking when you ask whether a bottom has been reached is whether the economy has further to fall. The stock market will only put in a bottom when the economy has stabilized and the groundwork has been put in place for the resumption of economic expansion and the return to corporate profitability. Based on that litmus test. Stock market risk remains to the downside as all four components of the GDP equation that drive economic growth remain in trouble. Consumer confidence in countries around the world is at historic lows, unemployment is rising and incomes are falling, and we are staring dead in the face of likely the worst Christmas season for the last four or five decades. Business investment remains moribund as it still remains unclear whether the credit crisis is over. While there is much talk of fiscal stimulus, politicians have yet to belly up to the bar for any credible Keynesian fix. Finally, from the United States and Europe to China, exports are falling significantly with softening global demand. In addition, in the United States, a stronger dollar is further discouraging exports. On top of all this, there is a growing risk that some state and local governments may default on some of their bonds as they are engulfed by budget crises. So, yes, I would say that there is a significant chance that the economy will continue to get worse before it gets better. In that scenario, the stock market will continue to fall through levels of support as it seeks the real bottom.
THE CHINA EFFECT Please see my latest You Tube report.
“Any trader or investor who ignores the power of macroeconomics over the world’s The Market Edge Market Summary from www.marketedge.com
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2008
Peter Navarro CONTACT
INFORMATION DISCLAIMER: This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever. Trading and investing involves high levels of risk. The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The authors may or may not have positions in the financial instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future performance. |
