Wednesday, November 19, 2008

What happened today? The sellers finally showed up!

I wrote the following on November 6, 2008
"If I am right on this one, then you are not going to want to read it
I think the markets have experienced this massive intraday volatility, because nobody wants to buy stocks for the long term at these prices. That tells me that prices are too high to find buyers. If prices are too high to find buyers, then they need to fall to a level where there will again be equilibrium between buyers and sellers. That is not a good thing if you bought recently or are fully invested in your accounts."


How far do we fall before supply equals demand? I have no clue how far we fall. Nobody does with certainty. I can only guess. But at some point the selling will give clues that a low is coming and I will be ready for it.

I want to review the markets, so that you can see what happened today, with your own eyes -
New Highs – 0
New Lows – 1,588
Berkshire Hathaway, Citigroup, Goldman Sachs, Bank of America, Merrill Lynch, Blackrock, Northern Trust, Charles Schwab, e-Trade
Google, Bidu, Microsoft, Cisco, Intel, Applied Materials, Yahoo, Amazon
Sears, Target, Macy’s, Best Buy, The Gap
GE, Alcoa, DuPont, Boeing, Lockheed, Honeywell
Freeport McMoran, Dow Chemical, US Steel

New Index Lows
NASDAQ, NYSE, S&P 500, S&P 400 Mid Cap, S&P 600 Small Cap, Russell 2000

Again, losers remain losers until proven otherwise…

Did you see the Bond Market today? The trends continue -
US Treasury 20-year Index (TLT) +2.56%
High Yield Bond Index (Junk) (HYG) -3.42%

Ireland
It appears that Ireland is the new Iceland. Ireland offered 100% government guarantees on all bank deposits. The problem is that the total deposits in Irish Banks are worth more than Ireland is and Ireland is now using the Euro as its currency, so they can’t print money to back out of the mess they are in.

Here is the Ireland (IRL). You know what is going on here. The stock is rallying into the declining moving average (Black Arrow). If you have learned anything from what I have been posting, then you know that there is a real high probability that the next leg is down.

Zero Interest Rate Environment
A few weeks ago, I showed you Ben Bernanke’s gameplan for how to “cure inflation” when interest rates were at zero. We are at zero right now, so you know that Bernanke’s plan is to print enough money to inflate our way out of the problem.

Today, the Fed released the notes from their October 2008 meetings and they basically said that they are committed to doing anything to prevent deflation. That means inflation, potential nationalization of the banks and a potential overnight devaluation of the US Dollar. Can you say 1932? More on this in the next few days.

Sectors
New Lows – Basic Materials (XLB), Financials (XLF), Industrials (XLI), Technology (XLK), Consumer Discretionary (XLY)
Broken Wedge – Healthcare (XLV)
Holding Up – Energy (XLE), Consumer Staples (XLP), Utilities (XLU)

I expect the sectors that are holding up will soon play catch up to the downside, because in Bear Markets, everybody gets hit!

Stocks
Microsoft
I wanted to revisit Microsoft. I wrote the following on 11/10/2008 (the beauty of archives) –

“$20.68 is the key level for Microsoft. It is the 62% retracement level from the 1994 low to the 2000 high. It has tagged this line on several occasions over the 8 years of its current Bear Market. You can see how much volume has traded in this range (Green Arrows). If Microsoft takes out $20 on volume, then you need to be very concerned if you hold it, because at that point single digits become a very real possibility in a short period of time. Man, what would that do the NASDAQ, the Dow and the S&P 500?”

Microsoft took out $20.68 like it didn’t matter and has fallen 15% in 9 days! Now that red line had better hold, or single digits look real probable.

Semiconductors ($SOX)
Semiconductors are now at critical support. 175 needs to hold, or the 115 range looks like the next stop.
The Dow Jones
From November 10, 2008
The Dow crashed in September and October on gigantic volume (Red Arrows). You know the drill. That is institutional investors running for the hills. The fact that they didn’t buy last month’s bounce with any conviction tells me that they are probably waiting for lower prices before they commit more money. The obvious target is the 1998 and 2002/2003 lows in the 7200 range.That massive volume in the 10,000 – 11,300 range will take a long time to work through (Green Lines and Green Arrows)

My story is unchanged. The Dow needs to find support soon or it may retrace the entire 1994-2007 move. I will be looking for signs of buying at or slightly below the 7,200 range.

Painful Stuff
Bear Markets are always far more brutal than you believe they can be.

I have the fortune and misfortune of experiencing the Technology Depression first hand. I saw what destruction it did to portfolios and promised myself that I would study and learn how to avoid the next one. I have been fortunate enough to avoid the carnage of 2008 and for the rest of my life I will be able to look people in the eye and tell that I sat out the Bear of 2008.

I have witnessed this Bear from the sidelines and protected a lot of families. But, sadly, I have seen other situations where people lost decades of savings and I had no authority to help them. I know that a lot of people won’t be able to retire they way they wanted to, or send their kids to an expensive college or pay to have their parents cared for in a care facility. That is absolutely tragic.

If this has happened to you, then don’t let it happen ever again! You have control. Either study or find somebody who has, to help you. That is part of why I put the blog together – to educate people who are getting less-than-timely advice.

There are no excuses for getting hurt in the next Bear and you know darn well that at least 2 more will occur in the next 8 to 10 years. Are you prepared?

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