Friday, August 19, 2100 9:20
DJIA: 10,990.58 S&P 500: 1140.65
When confusion breeds fear, roiling stocks, crushing their prices beyond reason and in defiance to accepted norms of value, markets will simply have to find a comfort level where risk takers step in with bushel baskets to catch any stock anyone wants to sell, effectively cauterizing the bleeding that is sapping the last ounce of remaining optimism.
So, here we are again, probing for support, stopping at an occasional way station to bounce momentarily only to slip to a lower level.
Stocks effortlessly penetrate levels that months ago attracted lots of buyers. Cruel, unreasonable, unfair, and scary.
The price of a stock can be justified most times , but not when “convention” is unraveling. As fear escalates, investors begin to question the survival of even the bluest of blue chips.
In truth, the price of a stock is merely a matter of opinion, just look at the high – low – high of any stock going back to mid-2007.
Accept, that and all this insanity becomes more understandable.
August 1 blog (DJIA: 12,143): “I expect the debt-deal rally to be short-lived, running into selling at DJIA 12.385 (S&P 500: 1316), followed by a slide to lower levels with a bottom in September/October.”
My initial projection was for a drop to DJIA; 10,700-10,830 (S&P 500: 1150).
“Can it drop further,?” I asked.
“Yes, depending on the investment environment at the time it gets there, that level can produce an attempt to stabilize, even rally. If Congress continues to be divisive along radical, ideological lines and the economy shows no signs of firming, the market should drop to DJIA 9,680 (S&P 500: 1050),” I wrote.
So here we are, DJIA 10, 990 with U.S. stock index options calling for a drop at the open of 150 Dow points and a brutally long weekend of uncertainty staring us in the eyes.
As warned on Monday, this was an important week for economic reports, and on balance, they suggested continued weakening in the economy.
What’s more, we see the remote “possibility” of an implosion in Europe sovereign debt issues in coming days.
Gold is hitting new highs minute-by-minute. Seeking safety, investors are scrambling for U.S. Treasuries with yields less than the rate of inflation (Next bubble to burst ?).
Time to retreat to that secure cabin deep in the woods, stocking it with a year’s supply of food and beverage ?
No, I don’t think so.
We have passed the “ouch” point, but haven’t reached the “I can’t stand it anymore” point.”
Time to get ready to move from the “on deck” circle to the batters box.
We have been told to “Buy low – sell high” if we are to be a successful investor. The problem is human nature gets in the way, because FEAR rules at the buying junctures, just as greed rules when it is time to sell.
One way for investors to deal with that is to nibble away, buying a partial position, let’s say 100 shares instead of 500, adding to the position later as they feel more comfortable.
I would be suspicious of a rally here, triggered by someone’s reassuring statement about Europe’s survival or talk of a double bottom. Perhaps a neat little traders’ rally, however odds favor a drop below DJIA 10, 000 within a month – six weeks.
The writer of Brooksie’s Daily Stock Market blog, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk
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