The indices are all in falling wedge patterns, suggesting higher prices coming up on a breakout. Last week showed a huge 5-day buy surge on diminishing volume, which suggests one or two more sell-offs remain before the market finishes its decline. However, this will all probably occur within 2-3 weeks, and the markets should set an intermediate term bottom before 2009 rolls around. This scenario is quite similar to what happened in 1929, as well, as December was the last down month in that first market decline. This "bottom" will be a great time to buy many commodity and energy stocks, which have tanked in recent months as the commodity bubble collapsed. Stocks like SOL, FSLR, ENER, ESLR, APA, DVN, CHK, CLR, POT, MOS, MON, CF, GU all look like they could have 30-70% bounces from this area to the next downturn in the markets, probably starting in spring 2009. I think this market bottom will be around Dow 6800 and that it will rally to about Dow 10,000. The market is just beginning its overall decline, however, and by no means is the stock market bottoming for good in the forseeable future. Deflation has just started and if the debt bubble collapses like I expect, our recession/depression will become inflationary, which will only make matters worse. I estimate the ultimate bottom to be around 3200 in the Dow, and those stocks I listed above will most likely end up much lower than current prices and some might end up bankrupt.
I can agree with this scenario. Obama hope and change rhetoric will rally the market during his honeymoon. Once the new Democrats start to push some of their programs through Congress it should spook the market and we will see a sharp sell off starting mid-2009.
I doubt Obama rhetoric will be the true catalyst. Bad news comes out at relative bottoms, and that is what I expect will drive the bounce-- a lack of new bad news. Liquidations will slow down and some short covering will occur.
I think that this scenario is a fair approximation of what's to come, the only thing is, time frames and price targets will be hard to predict due to all of the market distortions provided by Uncle Sam's desperate attempts to prop up asset prices. I think we will see an indefinite ban on short-selling before the DOW sees the 3000's like you predicted.
It is rally time, the market is shrugging off all bad news and a lot of people are in a buying mood. Sustainable into the new year? Who knows...
When I say time 2 buy, it usually is http://elitetrader.com/vb/showthread.php?s=&postid=2204835#post2204835 As I predicted when the Dow was down 70 points that there would be a huge EOD rally and sure enough there was. I messed up early this year by being too bullish, but now it would be a mistake to be anything but super bullish at these levels.
A strong year end rally? Thats what alot of the pros are calling for, perhaps too many. It seems like EVERYBODY thinks we've seen the lows of the year. In any case, keep your eye on crude. If it doesn't move above $50, this rally will not last. I also find it interesting the euro and pound are still near their lows while the equity markets have rallied nearly 20% off their bottoms.
Obama will strongly advocate an auto bailout. Once money starts flowing into the system the market will be artificially manipulated. People will soon realize just like the financial bailout that things still really suck. Market will tank and more hopeless country killing bailout's will probably occur.