New Lows... Where To From Here

Well it looks like the All Ords have closed at new lows since this crisis began... so where to from here?

 

Will probably rebound in the short term, can't see it lasting though.

 

Hi Chris,

I think the lowest was 3270 or so in October 2008.
It certainly looks like it got close during intra-day trading but came up for the close.

Cheers,

Dan

 

ATM is bouncing between 3300 and 3600. I think next stop could be around 2800 mark. It only takes one blink in USA and we are jumping out of seats. If all stimulus packages turn into the “bit of miscalculation” it will really hit the fan.

 

So you just think the market is oversold at the moment, and will bounce back as a result? Or do you have other reasons for this opinion?

I think the stimulus package is all smoke and mirrors for the public to stare at. I think the market is watching the nationalisation prospects with more interest.

I too am very interested (in a curiosity killed the cat sort of way) to see what the repercussions of what the various bank nationalisations will do both for the economy and markets - it could have big ramification for Australian banks as well. I think the consensus is moving more toward nationalisation is now unavoidable... and the repercussion will be very negative.

Off the top of my head, I thought the All Ords reach 3200 as their intraday low, but their lowest close was 3330, before today that was. That said, it's too late at night for me to run off and confirm. Either way we will probably testing 3200 in the not too distant future (my guess is sometime later this week assuming the nationalisation rumours gain some traction).

 

Looks like today will be that day for testing 3200 or at least very close to with the US down about 2% over night. The 7200 mark is certainly getting tested...

Cheers,

Dan

 

From what i've read they are expecting this to be a secular bear market, and I think its safe to say the time since the crisis has just been a short lived rally, which will probaly repeated as we test each new low. Only takes one more big company to go down for us to experience another crash?

 

I personally don't believe that markets HAVE to operate in cycles, though I agree that the way the money system is structured they often do as the money supply expands and contracts. The downside to my view is that if credit contraction is really the issue and the market is intent on going all the way back to more stable levels, then I don't see a reason (other than forced inflation from central banks) why the markets won't fall 75 - 80% from their peaks back in 2007.

Of course I'm hoping this won't happen, but when credit is contracting like this everyone who is highly leveraged is a risk and with each major default risk rates increase only prompting further deflation. We are well and truly into a deflation cycle now, and the market wants to see some real action from governments and central banks.

 

I believe Robert Prechter when he said that the credit market has to contract as much as it expanded, and that means the Dow has to go back down, way way down. Swan on over to Elliot Wave international for a different voice who cares not a whit for optimism in a bear market.

"But one man who did get it right in 2008 was Robert Prechter. The Georgia-based strategist forecast a massive unwinding of the credit bubble, and even bank failures, foreshadowing accurately what was to come. In fact, he did it in this very column almost exactly 12 months ago. Hold the optimism, counsels Mr. Prechter. We're nowhere near the end of this horror story, reckons the publisher of The Elliott Wave Theorist, an influential newsletter based on technical analysis.

“While there should be a violent rally or two in 2009, and several times a general conviction that the bottom has passed, over all, the debt implosion should accelerate,” he argues. “We have yet to enter the strongest portion of the declining wave pattern in the stock market.” (Globe and Mail, Jan. 8, 2009)

If you read his book Conquer the Crash (pub 2004) you will be amazed as I was and I just picked it up out of curiousity at the library.

 

Whilst I agree credit contraction is probably one of the biggest driving forces in this downturn, though I'm not completely writing off government and central banks ability to arrest the falls through their policies.

They managed to support the credit growth for the last 3 - 4 decades, and have arrested many subtle credit downturns in that period. I appreciate that this situation is unlike anything we have seen since the Great Depression, but you can never write of the possibility for government and central banks to delay/slow the credit contraction. No doubt the chips are definitely stacked against them, but it should be interesting to see if they can manage to get some form of floor under the credit contraction.