Daily Market Review – February 16, 2010
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My 2010 Market Forecast
My 2010 Forecast of the markets is ready!
In this forecast I predict where the market will head in 2010. I predict the exact date the current rally trend will reverse and what my target for the high and low will be in 2010 for the DOW.
In my 2009 Forecast I correctly forecast this on March 16, 2009:
1) the market will rally strongly until the end of the year
2) the DOW will reach a high of approx 10,500 in 2009 (the exact high was 10,580.33)
BOTH of those predictions came true.
Now, it’s time to be ready for 2010. What will happen and why.
To purchase my 2010 Forecast (recorded on Sunday, January 10, 2010) for just $19.95 click below:
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If you haven’t seen my 2009 Forecast you can download them for free here.
Yeah, but the US is OK, right?
When relating the 2009 GDP figures for Great Britain it helps if you have one of those airplane barf bags nearby when passing it on.
Why? Because is it so wretchedly bad, so sickening that you’ll need it.
Here’s the headline: Britain’s recession the steepest for 88 years
Here’s the story: http://business.timesonline.co.uk/tol/business/economics/article6986312.ece
What does this tell us?
It tells me that the world economy is far from ‘ok’.. in fact the aftershock could be as bad or even worse than the initial shock.
Yeah, but the US is ok, right? Ummm well…
Fitch Ratings, the bond rating agency had some stern words about US debt levels and the fact that there is no plan over the next 3-5 years to curtail spending andor reduce the debt. The result of this inaction would be a downgrade from AAA status. A downgrade would make it even more difficult to raise money (to pay for all our STIMULUS’s – cash for clunkers, cash for houses, cash for caulkers, cash for bailouts, etc) due to higher rates we would have to pay to investors.
Here’s the story: http://www.telegraph.co.uk/finance/economics/6969163/US-must-cut-spending-to-save-AAA-rating-warns-Fitch.html
I reported this in my Daily Market Review videos: Foreign investors are selling 30 yr Treasuries in favor of 3 month T-Bills? Why? What would cause them to sell the longer maturities and buy the shorter ones at a lower interest rate now??
It’s simple, would you want to be stuck collecting a low rate of interest for 30 years if you knew rates were going higher – soon, really soon? You wouldn’t. You’d sell those 30 year, low interest bonds in favor of the 3 month because at least with those you can roll them over every 3 months as interest rates rise and keep capturing a higher rate and who knows how high they will go? 3%… 4%…5%?
It’s simple. Those who did their homework (just about every major foreign investor) has seen the insane amount of spending the US is doing and absolutely NO concrete plan to reduce this type of spending and reduce the US debt.
None.
As mentioned in the story above, FITCH is ready to make a downgrade the US (!) unless they see something come out of Washington, but the fact is that they have raised the concern and that is enough to get more foreign investors nervous about holding those long-term maturities. The truth is Fitch, if they had any guts at all, should have downgraded the US already. But the disaster and fallout from such a downgrade would have devastated our financial system. Oh, wait. That’s already happened! So what the hell are they waiting for??
Foreign bond investors have already been selling the long term bonds in favor of shorter term bonds…. now with this warning, there will be much more selling just at a time when the US can least afford it. The US is looking for BUYERS of a $1 trillion+ in new 30 year bonds they need to sell this year alone starting with this Thursday’s $15 Billion 30 year bond sale. Where are those buyers going to come from when most foreign investors will be net sellers of the longer maturities?
What this means to you and me: Interest rates for mortgages, car loans and business loans are going higher. I’m especially worried about mortgage rates going higher. That will put an additional nail int he coffin for housing and send housing even lower in 2010.
Signs of A Worsening Economy?
Is this a sign of things getting worse and not better?
You be the judge.
The CNBC “glee” club are alchemists when it comes to negative news. What appears bad always has a silver lining when they report on it.
I’d like to see them spin this one positive:
“Oregon is one of several states that provides funding for so-called indigent burials. Historically, this money pays for a final service for people with no home or relatives. But in 2009, Gunson says, an unprecedented number of bodies went unclaimed — some for a month or more — not because family couldn’t be found, but because the economy has left families unable to pay for even the most basic $500 cremation.”
Technical Considerations for 2010
What’s in store for us in 2010? Let’s see…
There are certain technical patterns that are more reliable than others: “flags” in particular are good indicators that a move, once started, will continue in the prior direction of the flag.
Head and Shoulder patterns are also useful to determine when a prior trend ends and a new one begins.
As you can see below the inverted head and shoulders pattern from the March 2009 low would give us a measured target of 11,089 [to calculate the target take the low -6469- and the breakout point at the neckline -8779-, subtract (8779-6469=2310) and add to the breakout point to get the target (2310+8779=11,089)] on the DOW before this rally ends:
You’ll notice that the neckline slopes down and not up. Downward sloping necklines usually help performance so the target of 11,089 is probably a good one.
At 10, 500 though the DOW was showing extreme weakness internally. Each rally gets weaker in terms of the advance-decline line and up volume-down volume.
In addition we have reached the 50% retracement levels from the October 2007 highs in both the DOW and the S&P500.
Normally, if a correction of any kind is going to take hold it will do so at this 50% level.
What’s next?
According to Bulkowski (Encyclopedia of Chart Patterns, 2nd Ed., p. 366) , regarding inverse head & shoulder patterns: “Once price reaches the ultimate high, it tumbles about 30%, giving back nearly all of the gains on the journey up. Thus, selling as close to the top as possible is much better than a buy-and-hold strategy“.
A 30% decline from the target of 11,089 would give us our next target of 7,762. Wow.
Watch out below…