2008 is off to a rough start - are we headed further south?
This year isn't starting out very well at all - are we seeing a long term correction taking shape or will we pull out of this one soon? Why?
Best Answer
3127 points
EthanR answered 11 months ago …
I believe a long term correction is in fact taking shape. Many factors in our economy are pointing toward recession, and with oil at $100 a barrel, the market also fears stagflation (recession plus inflation) could occur. People had been saying that we can't have a recession because the employment numbers were too good, but yesterday's weaker than expected report on unemployment and job growth was bad news for stocks. The Nasdaq gapped down on increased volume, a sure sign of distribution among institutional investors.
Right now the charts for the Nasdaq, S&P 500, and Dow are not looking good. The RSI on each one is heading lower. On each chart, the MACD has crossed below the zero line and into negative territory. However, the technicals are not yet oversold, indicating there is more to go. The DOW closed down at 12,800, a key support line, but I believe that it is likely to be tested and broken some time within the next week. We may see a small bounce early in the week, but watch the volume. If it is lighter than on Friday's sell off, that is not a good sign.
One myth you will hear is that the market has to go higher because it is a Presidential election year. Yes, history says that this year TENDS to be a good one, but not every Presidential election year has produced a profit, and I don't think people should fall back on this as the ultimate savior. When employment numbers are bad and banks are writing off billions on bad loans, people sell and they don't care what year it is! We are hearing some whispers out of washington about a "stimulus package", but suddenly it feels like Herbert Hoover is back. Can you say "too little, too late"?
Answers
2703 points
MNSL answered 11 months ago …
No this is a temporary situation due to credit crunch. Because of relative tightening of international liquidity there will be a period of dollar strength in 2008. There is a also possibility that the prices of most commodities including gold and oil will come some under pressure due to strengthening of dollar. However, still stocks markets through out the world are strong. When ever there is a dip in the market, there is support level and markets are recovering quickly. There are plenty of money in the world today due to appreciation of all sorts of assets. When ever we see collapse of some asset class like real estate, some other type of assets are appreciating. For example now there is a market for soft commodities, animal production etc. We are in the final stage of this great bull market and at least this will continue for another two years.
There are good demands for certain materials in the world today. So some companies are making huge profits through out the world. And They are ever ready to invest in other countries as well. Other thing I noted is Dow Jones didn’t appreciated continuously in a rapid speed. However we can expect some sort of correction after 2009 if all type of market becomes very very hot. Still there are sectors, stocks, some soft commodities and some countries overlooked by the investors. Intelligent investors already have invested in those area.
236 points
Steph answered 11 months ago …
This is the question of the day for sure. Historical data suggests that if the major indices drop lower in January than the lowest day in December that action has resulted in a down year about 90% of the time. We are clearly in an extremely volatile period. How long this will last is just a guess. Contrary thinking would indicate that as the general public gets more pessimistic about the future it is already in the process of turning around.
This may be a year that breaks the rules. A lot of new patterns are in play this year. Although an election year is generally good for the market, this year there is no vice president running to continue the current policies. Politically people are looking for change. Change is frightening and that does not bode well for the market in the short term. Too much uncertainty. Look at the charts, the volatility is a direct reflection of how confused people are right now.
Also, the change in the uptick rule has added to the increased volatility. Indicators such as the vix are no longer as valid as they once were. New rules = new interpretations and that takes time.
Looking at the bullish percent index of the major sectors shows that we have already made much of the decline. I think if the sector action was just beginning to turn around from overbought then we would be in for a major fall, but that is not the case. Many sectors are very oversold right now which is usually a sign of low risk. There are many mixed signals.
Instability is the watchword. For me, I find this a fascinating time to be watching the market unfold.
236 points
Steph answered 11 months ago …
In my first paragraph I forgot to add that all the major indices exept the AMEX composite have broken their December lows.
Read more from Steph flag as abuse great answer
102 points
Harvey answered 11 months ago …
I totally agree with EthanR, above, and add that too many consumers are too deep in debt which will lower retail sales and auto sales. The mortgage problem will take all year to be solved, and most investors are probably not too happy with the presidential candidates.
Read more from Harvey flag as abuse great answer
102 points
Rob answered 11 months ago …
I believe we will head "further South" for the first part of 2008. I don't believe the employment figures (think it is a bit worse than reported and will get revised downwards).
The drag in housing and credit continues to scare investors but I sense that a landing will be felt before spring. It seems to me that a lot of the housing and credit scare will or should be factored into the equation by spring adding strength to the feeling of some solid floor. I think the Fed will cut rates out of fear of letting the economy tank altogether.
I both agree and disagree with Steph (above). Talk of change in the political arena may frighten some, but change is inevitable in this political season. Therefore, I think this year, the notion of change will actually spur some hopefulness in both the political and economic sectors. When you know change is coming, people brace and prepare for the best possible outcome. Forward thinking is what the economy and Washington needs, now. So, I believe the climate will be in place for a more positive spin and expectation.
By third quarter, I think this recession will begin turning to the upside. That will be a time to seek out the best of the bargains. Overall, I'd have to agree with analyst, John Mauldin, I think we continue "muddling" through but ultimately seeing a better ending than our beginning in 2008.
583 points
jillybeansisme answered 11 months ago …
Remember when you played on a see-saw as a kid? When you were up, the kid on the other end was down. When he was up, your side was down. Well, the markets are the same. There are always profits to be had in some sector. Look at Monsanto (which I own) which is up about 300%. Look at Wynn (which I used to own). It opened at $15 and went to $172 and is now $106.
I believe we are in a correction of sorts because of the financial fiasco of John Q. Public and the Government's overspending. That being said, I believe there is always money to be made and I hope I can do as well as last year. I had ups and downs and some mistakes and expect them. That's reality. But prudence and discipline paid off to the tune of 32.93% gain for the year (yes, I'm tooting my horn because I'm proud of it).
I also think that some of the sell off could be rebalancing of portfolios. I know I do that in January.
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