After the DOW hit 14,000 just a week ago, this week has seen a more than 500 pt drop. While one day drops are not uncommon, three days in one week of 100+ pt drops starts to feel like a trend. What happens next?
The summer months tend to be the weakest in regards to stock market performance. As the saying goes "Sell in May, go away" means that you buy back stocks in the fall around Sept/Oct.
The one thing still holding up the stock market is that the Economy is still doing well! Is it slowing, yes, but not near a recession at this time by any means. The 2Q07 GDP estimates are 2.5% to 3.0%...
The credit markets are slowing, yet things havent impoded as many here have predicted in the WHOLE market (not just the housing market, which is experienceing problems). What percentage of the US Economy is directly related to Real Estate? My prediction is that as long as the Global Economy stays strong (high demand for US products) we will be ok, however if Global Demand declines significantly then we have problems.
It's looking like a 400 point drop today is possible, which is hardly sell in May and go away mentality. This is based on news and is an active day. If next week were to be half as brutal as this week, it would break through the 13,000 floor.
The real reason the stock market has done fairly well this year has little to do with the economy. In winter, prices held because people thought the economy was faltering enough to force the fed to lower rates. In the spring, retail earnings were awful but people didn't care. Up until Monday, it was obvious the financial sector was at risk, but people looked away.
Why? Probably nobody knows for sure, but I think one of the biggest reasons is that current prices are really not that over-priced. Economic growth between 2001 and 2007 was probably enough to warrant a 12,000 Dow. If the Dow is 10% overpriced for example, that is such a drop in the bucket compared to housing, metals, and baseball tickets.
Glad to see it finally happen, hopefully the drop will continue into the 12,000's - we haven't had a buying opportunity for quite some time, though I won't be running out there to buy right away.......
So yesterday recovered a bit, to only a 300 pt loss instead of 400. But what's happening now is apparently a lot more pent up fear than I would have expected. Usually after massive losses you see buying the next day as an 'opportunity to buy', but today we saw the market off 200 more points.
Did I mention this happened on a Friday (typically slower day) at the end of July (typically a slow month).
The big question is how do we come out on Monday. Weekends give traders time to think. If they think it's a buy opportunity, then we might storm back. But if we drop another 150 points on Monday, the bottom might start to fall out. I'll have to check where the floors have been lately to see if we've broken any and by how much.
The one thing still holding up the stock market is that the Economy is still doing well!...
The credit markets are slowing, yet things havent impoded as many here have predicted in the WHOLE market (not just the housing market, which is experienceing problems). What percentage of the US Economy is directly related to Real Estate? My prediction is that as long as the Global Economy stays strong (high demand for US products) we will be ok, however if Global Demand declines significantly then we have problems.
I swear finance...are you sure you're not one of the clowns they always interview on CNBC? You spit out...geez...exactly what everybody else has been saying. Do you ever come up with your own stuff, finance?
Also, what do people think about that CNBC "unprecedented" economic summit they had this morning? Would you say the very fact they even had to had those 4 come out and talk about the economy...the day after the 331 point drop...the day of the 208 point drop...does it mean anything? CNBC said that's never been done before.
When I put this poll up, I didn't really believe we'd crack 13,000 support until the end of summer. But here we are only about 12 days away from 14,000 and only 200 points above 13,000 again. I decided to do a small amount of analysis.
It looks like we'd toyed with 13,200 a few times in the last 3 months. That would mean 13,200 (like we're at now) is probably a support. However, if we pass through, which it looks like we might, then the next supports are 12,800, 12,000, and 11,000. I'm starting to think that we might test that support at 12,000 by the end of the summer if things don't turn around. If we pass through 12,000, you'll see most of the last 2 years worth of gains destroyed.
After a couple days off, the carnage continues. We've had several drops of around 200 points the last week and a half. We should close within 200 points of 13,000 today. This is the second Friday in a row with heavy trading. That is usually a strong sign.
I expect we'll test the 12,000s sometime next week. If the market actually sits below 13,000 for a day or two, I expect it to continue dropping towards at least 12,200.
Comments
The one thing still holding up the stock market is that the Economy is still doing well! Is it slowing, yes, but not near a recession at this time by any means. The 2Q07 GDP estimates are 2.5% to 3.0%...
The credit markets are slowing, yet things havent impoded as many here have predicted in the WHOLE market (not just the housing market, which is experienceing problems). What percentage of the US Economy is directly related to Real Estate? My prediction is that as long as the Global Economy stays strong (high demand for US products) we will be ok, however if Global Demand declines significantly then we have problems.
The real reason the stock market has done fairly well this year has little to do with the economy. In winter, prices held because people thought the economy was faltering enough to force the fed to lower rates. In the spring, retail earnings were awful but people didn't care. Up until Monday, it was obvious the financial sector was at risk, but people looked away.
Why? Probably nobody knows for sure, but I think one of the biggest reasons is that current prices are really not that over-priced. Economic growth between 2001 and 2007 was probably enough to warrant a 12,000 Dow. If the Dow is 10% overpriced for example, that is such a drop in the bucket compared to housing, metals, and baseball tickets.
Did I mention this happened on a Friday (typically slower day) at the end of July (typically a slow month).
The big question is how do we come out on Monday. Weekends give traders time to think. If they think it's a buy opportunity, then we might storm back. But if we drop another 150 points on Monday, the bottom might start to fall out. I'll have to check where the floors have been lately to see if we've broken any and by how much.
I swear finance...are you sure you're not one of the clowns they always interview on CNBC? You spit out...geez...exactly what everybody else has been saying. Do you ever come up with your own stuff, finance?
Also, what do people think about that CNBC "unprecedented" economic summit they had this morning? Would you say the very fact they even had to had those 4 come out and talk about the economy...the day after the 331 point drop...the day of the 208 point drop...does it mean anything? CNBC said that's never been done before.
It looks like we'd toyed with 13,200 a few times in the last 3 months. That would mean 13,200 (like we're at now) is probably a support. However, if we pass through, which it looks like we might, then the next supports are 12,800, 12,000, and 11,000. I'm starting to think that we might test that support at 12,000 by the end of the summer if things don't turn around. If we pass through 12,000, you'll see most of the last 2 years worth of gains destroyed.
I expect we'll test the 12,000s sometime next week. If the market actually sits below 13,000 for a day or two, I expect it to continue dropping towards at least 12,200.
Everyone else...sorry but you lose. Well, technically, the market could still move a lot in the next 7 weeks, but you get the idea.