Volatile markets ahead
The last week in the market has told us a lot. Investors are no longer responding to credit issues by the Federal Reserve and the rapid pullback shows us that a lot of people want out. The next few months ahead look pretty rough, especially considering the technical indicators on the Dow.
We’re now entering the tip of a technical pennant flag, where two trend lines meet and cross. At this point you have to see what side wins out, the sellers or the buyers, if the news is any indication it will be the sellers, by far. There is still plenty of support at 11700 but resistance is still heavy. Weakening financials and the Bear Stearns blowup have a lot of investors worried. Oil prices, financial industry news and other indicators have the power to shift the market quickly into a downturn. If oil stays this high, there is going to be plenty of panic. At $120 a barrel, that’s when things will fall off a cliff.
Support is also heavy at just below 12000, institutions must see below 12000 as an absolute bargain. Corporate earnings are still looking reasonable solid absent the financial industry so buyers are liking today’s PE ratios.
As earlier, I’d wait to see the market reaction to new stimulus funds. As of right now its tough to make a long term position, we’re still well off the highs but sellers are everywhere. The baby boomer generation that propped this market up will be selling in the coming years to retire, that certainly plays a role in the sell off as well.
Here’s what I see right now, its too close to call:
