I wanted to share a chart that I picked up from a trader on a subscription service that I belong to. I am not sure if the low on this chart is accurate, but I totally agree with the psychological aspect as to how this downturn will play out. Markets are all about confidence and once that is lost there are several psychological stages that investors must go through before the bull market ever comes back:
Quick Take:
There are many traders including myself that see the same type of scenario. I am not sure if we get down to 350 on the S&P but its a distinct possibility in my view if our government continues to go down the path that they have chosen.
I personally think the low on the S&P will bottom out at around 400-500. From a psychological stage perspective I think this chart is dead on. Remember folks, we haven't seen any real panic selling yet in the stock market. We haven't even had a 1000 point down day on the DOW since this correction got started.
I think we are now in the denial stage as the chart suggests. Once the Obama stimulus plan fails, panic and capitulation will be right around the corner.
One positive here is hope will eventually arrive after we take our medicine.
We will recover from this. However, a lot of pain must be taken before we get there.
8 comments:
According to the chart it looks like we're about to have a little rally before all hell breaks loose. Is your thought that since you believe in the overall capitulation thesis, you rather be a little early than to be greedy and try to time both the mild upswing and then the major downswing?
I have to laugh that everyone shows such hate towards Madoff and his Ponzi scheme. I mean, it certainly is horrible what maddoff did, but it is really any different than the Ponzi scheme that is perpetuated on this country every day? I continue to be amazed at how much everything is based on perception and not reality.
I think we might see a mini bank rally over the next few trading days -- people thinking banks are oversold -- but I don't have the guts to jump in to FAS for any length of time because I think the banks are insolvent. I did a 5 minute trade on FAS on Friday near its lows (bought at 12.12) and sold minutes later at 12.84. Nothing but gambling...I should just put the money on the Ravens +5.
Zmon
Steelers baby! In a blowout. I think we might get back up to 950 on the S&P like the chart says before we capitulate.
I too worried to put big short bets on right now Zmon. The "Obama hope effect" is the big risk/wild card. I have small bets on for now. His stimulus could take us higher.
I need to learn more details on what he plans to do. Once I have ore details I will form my strategy for 2009. For now its play small and try to play the volatility in the stock market casino!
You may be right on the banks. It all depends on how Obama's proposed good bank bad bank plan plays out.
There is a possibility that the common shareholders get wiped out if they decide to do this. I am still short here because I think some of these stocks could go to zero.
I won't hesitate to close these out though. I am up 50% on my FAZ and have no desire to give back my profits.
FYi: There was some heavy buying on weakness for Wells on Friday.
http://online.wsj.com/mdc/public/page/2_3022-mfgppl-moneyflow.html
Perhaps a rally is indeed at hand. I certainly wouldn't mind seeing as I went long WFC after seeing a Bollinger Band crash and rather heavy buying volume.
OT, I'm a Mac guy but need another computer strictly for charting. Do you have any PC recommendations or should I stick with Mac? I've been browsing but it's all greek to me.
Joey
I am clueless when it comes to tech.
I don't know what trading platform you use but Think or Swim has excellent charting.
NEver used a Mac.
GL with Wells. We are in uncharted waters with the banks. I really have no idea how they trade going forward.
Inaugeration day may set up a rally. It may be a sell the rally type event though.
Lets see what happens!
Consider getting a Dell refurbed laptop using this promotion. If all you need to do is chart, the bare minimum will be sufficient.
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Thanks Zmonet!
I ended up getting a tower because I need two additional screens (total now: 6).
p.s. What is going on with futures today!!? Down 30 pts.
Joey
The banks in England blew up. Most of the stocks are down 60-70% today. England had to infuse them with billions in new capital. There are concerns the common shareholders will be wiped out.
Expect the crushed to get crushed over here tomorrow. Lots of counterparty risk. NAtionalization is a distinct possability.
oops I meant banks above.
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