Talk to the bears and they say you're dreaming, if you think the Dow has bottomed at 8,000.
What's the typical investor to do?
Let's do a condensed, cross-methodology analysis to see if we can arrive at an informed investment decision / conclusion.
Technical Indicators: Bearish.
Fundamental Indicators: Bearish.
Monetary Policy: Officials are doing everything they can to stimulate growth. Bullish.
Fiscal Policy: More fiscal stimulus should be on the way, in both the U.S. and aboard. Bullish.
Credit Markets: Recovering, but still strained, with still too much interbank distrust / fear. Bearish.
Geopolitical Risk: On average, it's about the same as it has been during the past 3-5 years. Neutral.
Conclusion: The view from here argues that the outlook for U.S. stocks / stock market is bearish at least for the next six months, and most likely for much of 2009. Further, if Dow 8,000 doesn't hold, the market could fall much more, particularly after 2009 earnings estimates are revised downward, as they are expected to be.
Advice for the typical investor: Start with 100, then subtract both the number 20 and your age. The total is the percent of your portfolio that should be held in stocks. [The standard rule was just subtract your age from 100, but yours truly has added 20 percentage points for risk associated with the global financial crisis.]
Examples:
Age 25 investor: 100 – 20 – 25 = 55% stocks.
Age 35 investor: 100 – 20 – 35 = 45% stocks.
Age 45 investor: 100 – 20 – 45 = 35% stocks.
More conservative investors could consider subtracting 25% for the financial crisis, which would bring the stock allocations for the above age groups to 50%, 40%, 30%, respectively; more-assertive investors, selling only 15%, etc.
Further, if you sell 20-25% now, and the Dow drops to below 8,000 - - it may be prudent to sell another 10-15%. The reason? If the Dow repeatedly closes below 8,000 then 7,600, it could drop to 6,000, for technical reasons.
Market Analysis: Of course, there's always the chance the Dow could rally from the current 8,800-range to 10,000 or 11,000 after you've sold a portion of your stock portfolio to meet the above percentages. The view from here argues that the downside pressures exceed the upside pressures, at least for the next six months. I.E., the Dow is more likely to see Dow 7,000 than it is Dow 10,000 or 11,000 by June 2009.
Why do we have a weak dollar?
Holiday hiring slow for retailers
Closing Bell: What sell-off? (AIG, ABK, EPR, MBI, JAVA, ORCL, ERTS)
