Recovery, Double Dip or Depression?
To say the least, the technicals of the stock market suggest an economy that is sluggish at best and quite possibly headed for a double dip recession or maybe something much worse. Could we be on the verge of another Great Depression developing and we don’t even realize it? Here at ProfessionalStockTradserLive.com, we certainly are not taking the “D” word off the table. Mounting evidence suggests this economy is heading for a double dip and quite possibly something more ominous unless drastic measures are taken by both our government and the Federal Reserve. Time is of the essence, act now.
Recessions typically clear out the “excesses” of booms, such as too much debt but it surely does not appear to be the case this time around. Consumer debt still stands at an astronomical $13.5 trillion, or $44,000 per person. This is a drop from its peak but still more than 120% of wages and investment income.
Another fear we have to deal with is deflation, a consistent drop in prices. Deflation is rare, but can devastate an economy when it does occur. Consumer prices fell again in May, making this the second month in a row.
Now that the government stimulus has nearly been removed from the economy, we can see the economic numbers are starting to fall off a cliff. I think the only one shocked by this is our government.
So, Where Do Stock Prices Go From Here?
In the three months ended June 30, the S&P 500 index fell 11.9%, this being the largest quarterly loss since the 2008-09 financial crisis. Since Calvin Coolidge was president in the 1920s, stocks have found themselves falling 5% or more in 41 quarters. According to an S&P analysis of prices going back to the Great Crash of 1929, stocks tend to climb in quarters following big declines. Stock prices have risen 29 times, some 70% of the time after seeing such large losses.
One might think the odds favor an up move over the next 3 months but even if that were to be the case, it doesn’t mean the move will be meaningful or long lived. In the past, those rallies may have been warranted, forecasting better times ahead. In this case, is it possible stocks have taken this recent significant dive because it is forecasting declining economic conditions? We think so! The fear has now become widespread that economic growth may slow, or stall completely, that has left bulls wondering if stocks could drop even lower.
The Technical Take
The technical’s have now confirmed a breakdown with the S&P 500 (SPX) Cash braking below key 1040 support and the DJIA braking below 9757, both appearing to have put in a head and shoulders top pattern.
Based on Elliot Wave Technical Analysis, a 5 wave pattern to the downside would suggest a measured move to 860 on the S&P 500 (SPX), which ties in rather nicely with S&P 500 (SPX) 878, a 61.8% Fibonacci retracement from the March 2009 low to the April 2010 high.
For the DJIA, we would be looking at an 8,400 measured move based on Elliott Wave Technical Analysis and 8,290, a 61.8% Fibonacci retracement from the March 2009 low to the April 2010 high.
While we do think the lower numbers are doable, we certainly will respect the technicals if they suggest something different is afoot. For the time being, it looks as though BIG FOOT is here.
Major Support & Resistance Levels Of Interest
In the short term, we would expect to see some type of rally appearing very soon as too many stocks are at extremely oversold readings.
· Support on the SPX comes in at 1018/1020, 1008/1010, 1000, 990/991
· Support on the DJIA come in at 9660/9670, 9600/9620, 9540/9550, 9428/9440
· Resistance on the SPX comes in at 1034/1036, 1040/1042, 1049/1051
· Resistance on the DJIA comes in at 9795/9810, 9855/9865, 9925/9935, 9990/1005
Since late November 2009, we have been teaching our members in our nightly video updates and daily live webcasts to be vigilant in this continued complex market environment. We teach our members how to protect their portfolios and actually capitalize and make money in a declining market. We believe for the foreseeable future all rallies in the stock market will be false and fruitless and all MAJOR risks continues to be to the downside.
Regardless of how you play the market, at ProfessionalStockTraderLive.com we always preach for our members to be patient, discipline and use stops.
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