Has The Market Hit Bottom?
The Dynamic Wealth Report
November 28, 2008
Black Friday Predicting A Market Rally!
Every investor I know has the same dream. Predicting the direction of
the market. Knowing if we’re heading higher or lower in the coming weeks
or months. Having that kind of knowledge would be very powerful. Having
that kind of knowledge would be very profitable.
There’s two ways to judge the direction of the markets.
The first is to use some form of technical analysis. The second is
to look at the fundamentals of the market. I’ve been looking closely at the
market and I think we’re near a bottom.
Why?
A few things are pushing me to that conclusion. The first is the chart
of the Dow. If you look at the chart below, you’ll notice something… it
looks a little funny. I changed the settings on the chart.
What you’re looking at is a bar chart of the markets. It marks each
day’s open, high, low and close. A chart like this gives us much more
information.
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Anyway, here’s the point. See the big drop that occurred in early
October? Notice we had another big drop in November? That could be an
early sign of a bottom in the market. It’s called a double bottom.
Technical analysts will tell you it’s a signal. A change in direction is
expected.
Here’s the other key that’s got me thinking we’re near a bottom…
fundamental information.
When I’m talking about fundamentals, I’m referring to how the market
reacts to news and other information. Just think about the news over the
last year. Most of its been bad, and the market traded lower.
The first news about the credit crunch. The hedge funds imploding
because of CDOs. The Bear Stearns collapse. The Lehman Brothers
bankruptcy. Don’t forget AIG, Fannie Mae, Freddie Mac…
In every case the market traded lower.
But last week something changed.
The federal government stepped in to save Citigroup (C), one of the
largest banks in the world. This wasn’t a friendly helping hand. Here
the government invested $20 billion dollars and agreed to guarantee
another $306 billion worth of loans and commitments.
Citigroup gave up warrants, stock, and agreed to cut the quarterly
dividend. And that’s just the beginning… so what happened to the
markets?
They traded higher for 4 days in a row.
I’d expect this news to push markets lower. Now we’re rallying off of
the news of government rescue? It’s not logical… and it’s a great sign
we might be at a bottom.
Now, about Black Friday.
Today is Black Friday. It sounds ominous, but it’s the number one
shopping day of the year. The day after Thanksgiving everyone
heads to the malls to buy gifts for the holidays. A huge portion of the
holiday
season sales occurs in this short 24 hour period.
This is the day every retailer dreams of… but this year it’s a
nightmare.
Black Friday sales are going to be weak. Consumer confidence is hovering
around record lows. The economy's in recession. People are losing their jobs. Not exactly the time to be spending money.
I’m expecting the retailers to announce horrible results.
Sales on Black Friday are going to be down. Retailers are going to
comment on how bad the shopping environment is. It’s all going to be bad
news. That’s going to lead to bigger discounts and eventually shrinking
profits.
It’s not good.
That’s why today’s going to be so important. We know the news is bad.
The question is how will the market react?
If the market crumbles on the news… watch out, we’re heading lower.
However, if the market’s flat or trades up on the horrible news… it’s
another signal the market’s at a bottom.
This “signal” isn’t always perfect. But this year, I’m watching it very
closely. Today’s news and the reaction of the market next week will
determine the trend in the market. I’m expecting a rally in the next few
months.
• Stifel Nicolaus
upgraded 13 of their REITs under coverage. The analyst moved the companies
from “Hold” to “Buy” ratings noting they were attractively priced.
• J. Crew (JCG) was downgraded by Needham to “Hold”.
The stock's down 80% from its high. Good call… just 9 months late.
• Friedman Billings just started research coverage on Genuine
Parts (GPC). The initial rating is “Underperform”. Why
initiate coverage on an auto parts company if you don’t think it's worthy of
buying?
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