Once again, the Dow has registered a lame, listless rally and then moved back below 8,000.For those investors who may not follow indices closely, the 8,000 level has psychological but not technical support. The latter measures such things as the number of investors who are buying / selling, whether investors are committing new money to the market etc.
Right now a battle is taking place between bulls and bears at the institutional investor level: the bears argue the worst economic news stemming from the financial crisis is yet to come; the bulls say that the worst news is behind us, and that government stimulus, fiscal and monetary, will both stabilize the financial system and get the U.S. economy moving again.
The Dow Tuesday closed below 8,000 at 7,949. If the bears can keep the Dow below 8,000, then push it through 7,800, then 7,600, it will not be a pleasant time for investors.
Some institutions may continue to hand-sit until mid-February, preferring to await the Obama Administration's announcement of the exact size of the fiscal stimulus package, now believed to be approaching $725-850 billion.
Let's do a condensed, cross-methodology analysis to see if we can arrive at an informed investment decision / conclusion regarding where the Dow is headed, near-term.
- Technical Indicators: Bearish.
- Fundamental Indicators: Bearish.
- Monetary Policy: Officials are doing everything they can to stimulate growth. The Fed will use quantitative easing to ensure that the credit markets and key institutions remain liquid. Bullish.
- Fiscal Policy: More fiscal stimulus should be on the way, in both the U.S. and aboard. The Obama Administration also is likely to announce a major overhaul of the U.S. banking system, given the need for additional capital at key banks, including the Bank of America (NYSE: BAC). Bullish.
- Credit Markets: Recovering, but still constrained, with still too much bank tentativeness, if not fear. Not enough banks are providing credit where it's needed: for commercial operations. Small businesses and consumers are having a hard time obtaining credit. Bearish.
Market Analysis: Underscoring -- the Dow's path of least resistance, from a technical standpoint, is down. There's technical support in the 7,300-7,600 range but not much after that, which is why the psychological 8,000 level is important. It's not as strong a barrier as technical support, but it's 'the barrier before the barrier' -- and the goal is to avoid testing the last support, if possible.
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Reader Comments (Page 1 of 1)
1-21-2009 @ 1:16PM
Bizprof said...
Agreed the focus on 8,000 is purely psychological. Which technical indicators do you use?
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