Will the Dow retest the March 9th lows?

Posted May 21st 2009 5:40PM by Connie Madon
Filed under: Major Movement, S and P 500, Recession

In an earlier post I said that the lows of March 9 should be retested. If at that point the March 9 lows hold and a second rally begins, you would have a W bottom which is more powerful than just a single bottom.

David Rosenberg, chief economist at Gluskin Sheff + Associates is of the same mindset but more from fundamental standpoint. His main theme is that consumer spending did not pick up and is keeping the economy in the doldrums.

The S&P index has had a 24% rally off the bottom. Both Mr Rosenberg and I agree that what we have seen is a gigantic short covering rally. Short covering causes buying in the market because traders need to buy back the stocks they sold short.

The benchmark index for U.S. stocks plunged 57% from October 2007 to March 2009. Credit losses from the subprime fiasco amounted to $1.47 trillion. In the midst of the crisis, the government pledged $12.8 trillion to prop up the economy. So, the $64 question is "Are we still in a black hole?"

Meanwhile markets trade up and down. It might be wise here to pause and let the market currents tell you what to do. Never try to guess what the market will do. That's a sure sign for disaster.

Do you believe that the March 9 lows will hold?

Tags: djia, dow, featured

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Reader Comments (Page 1 of 1)

5-22-2009 @ 1:46AM

Steve said...

Very difficult to say if this is a big short-covering rally. However, I am believing more and more that this may be the case. No matter what, we need to correct at this point.