Dow under 12000, is that a problem?
Today the DJIA fell below the crucial 12000 and even the 11900 mark. The good news is that we’re not yet below a very important trendline and the market looks like its ready to bounce. Fundamentals like the economic stimulus package have yet to add to earnings, that we may see in the fall, but for now it appears that the market is weak until a new catalyst appears.
It is very true that the market needs a catalyst for advance. Without any economic news, positive news that is, the chances that the stock markets will continue to fall is very high. The credit crunch debacle will continue to weigh down the market through the rest of 2008, not because of real bank failures but also due to the news and noise that is surrounding each event. Each week a new bank is said to be on the brink of collapse and even though this may be true, all of these rumors and news events certainly aren’t helping.
There are many reasons to start buying here. The economic future looks ok, corporate earnings should be high throughout the summer, the only reason to sell here is if the oil spike continues further. Many traders and investors are getting to a point where the returns should start outpacing the risks. The large investors, hedge funds and financials have dumped huge amounts of stock to cover their expenses and I think much of this sell off has to do with the institution than with the traders that make up the market.
On the technical side, a 10 year look at the DJIA shows that for each touch of 30 on the RSI, a big rally comes after, some 500 points at the least. Just look a few months back to the rallies when the market hit 30 on the RSI. A nice rally came after it. Even in March of 2007 when the market was seemingly topping, a fall of about 700 points was followed by a 2000 point rally.
