Saturday, August 08, 2009

Stock Market outlook: Where are we headed?

I thought it was time to do some charting and see what has happened in the past few months and where we are headed by mid October using charts as a predictor. I have included two charts today. The first is of the Dow and the second is of the S&P 500 using a 3 year period. I have two added lines on each chart. One is colored Blue and represents why so many thought we were headed down the past month (and we didn't). The second line is red and it shows the highs I think are still possible between now and Options Expiration in October, before we do finally have that downturn I have been expecting. Here are the charts:

For the Dow it says that we will not go over 10,000 and on the S&P 500 we will not go over 1090, but there is still the possibility of some good gains in the meantime. Those of us still holding any Short positions, you have endured a lot of pain these past few months, me included. I don't know for you if this is the time to sell, as it could be almost the worst possible time to do that. But let me be clear here, there is more pain ahead short term for short positions and those wanting to get out should, as you know your tolerance for pain better than I do. I will tell you this, I am holding mine and may buy more to average down. The question to ask yourself is this: Do you think we are near the end of the recession or do you think we are near the bottom of the decline? They are very different questions with differing strategies depending how you answer the questions. I think we are near the bottom of the decline. Just 12 Percent of Stimulus Money Has Been Spent according to this report dated August 5th. Moreover, that 12 percent includes some $13 billion from the Social Security Administration in one-time $250 checks to current Social Security recipients. So we haven't had enough stimulus yet to really make much of a difference. Add to that the fact that over 400,000 were dropped from the unemployment numbers reported yesterday as they gave up looking for work. When the Congress extends benefits for the unemployed, those 400,000 will be added back into the unemployment numbers, making the overall percent unemployed much higher.

It has been a good week for my shares of stocks long and they have given me gains for the week but I am looking at building cash right now in preparation of the Fall drop.

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