Tuesday, March 3, 2009

Market Tumbles While Washington Fumbles

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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If it doesn't seem to you that anyone is in charge in Washington, you're not hallucinating. While President Obama is busy worrying about lobbyists attacking his 2010 budget proposals and Treasury Secretary Geithner still fails to realize his job has something to do with the markets, U.S. stocks are tanking. The decline in financials, Citigroup was just above penny stock status at its low of 1.15 yesterday, is sending a clear message that Washington's piecemeal plan to deal with banks is ineffective. While the actions of the Bush administration failed to prevent further erosion of the financial system, the conclusion that the Obama administration seems to have come to is that if they do even less of the same ineffective things, this will solve the problem.

The action in U.S. stocks yesterday was brutal. The Dow was down 4.4% and traded below 7000 for the first time since 1997. The new low of 6737 is still well above a band of strong support that ranges from 5600 to 6200 or so. The S&P 500 was down even more, dropping 4.7% and traded briefly at 699, also for the first time since 1997. The Nasdaq held up better the other indices, falling only 4.0% and its close of 1322 is still above its November low of 1295. The small cap Russell 2000 was hit the worst of all with a crash level 5.4% plunge. It finally broke its November low by a couple of points.

The market drop is not isolated to the U.S. and is a resounding vote of no confidence in the handling of the Credit Crisis by world leaders. The sharp sell of in the U.S. was exacerbated by the S&P 500 breaking its November low last Friday. This confirmed that the S&P made a huge double top in 2000 and 2007. The neckline low set in 2002 was actually violated last November, but the markets rallied immediately. We were not so lucky this time. The next strong support for the S&P is in the 600 to 630 range. The S&P at 600 roughly translates to Dow 5600 and Nasdaq 1100 (the low set in 2002 was 1108). This would be a strong floor of support that the market would have trouble breaking.... certainly the first time.

In the near term, a rally can take at any point from here on in. The oversold level of the market is at extremes. What will set this rally off and what day it will start won't be known until it happens. You can assume that it will only be temporary as well. The ultimate low is way off in the future.

The monthly meeting of the New York Investing meetup is tonight at 6:45PM and it will be held at PS 41, 116 West 11th Street (at 6th Ave).

NEXT: Stocks Looking for a Bottom, Oil More Bullish

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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