Ponderings

Where to from here?

There is so much to take into account when trying to guess where things are headed over the next week, month, year. It’s truly dizzying. It’s so easy to over analyze. Trust me, I do it all the time. I’ll convince myself of one thing only to find an argument for the opposite side.

Let’s break it down. First of all the stock market is forward looking. Six months into the future actually. News and information today is viewed as “what is the impact in six months”. For instance the housing downturn. Home prices are down roughly 20% and every month we read that the new numbers are showing a further decrease… but, how the markets are looking at that is “has the decrease decreased?”. Meaning, has the rate of decrease slowed. Instead of being 8% lower than a year ago, are prices only 7% lower year over year this month? Will the bottom be set in 6 months? So, while bad news keeps rolling in, it’s a question of is that bad news less or worse than last month? The markets don’t wait for home prices to actually start moving up, they anticipate it half a year in advance. It’s a gamble, the tick up in home prices for instance may be a temporary anomaly due to buyers of homes thinking the sinking prices are bargains when in fact they were too early to the party. Again, over analysis is so easy to do. Sometimes you have to come up with your own theory and stick to it.

I had marked Dow 8,500 as the low back when it was at 11,000 over the summer. I had come to that number based on analysis and charts (not astrological charts). The current closing bottom is 8,451 as of last Friday. Should I stick to my guns and do what I said I would do and dive back in? Or, as I’ve done, I’ve revised my estimates and think that 7,000 will be the low. Am I over analyzing? Am I over thinking? Am I second guessing myself because we’re here now? I don’t know the answer. Yet. I don’t want to miss the bottom, but I also don’t want to be too early to the party. If there is another 20% decline from here I want to wait for it. If/when we hit 7,000 will I then say that 6,000 is on the way? I try not to get swept up in the emotions of the present day. I prefer to think that I continue to do my research and am making informed new decisions. But is that really possible? That’s why I like technical charting methodologies, they’re emotionless. Show me some numbers to crunch, some patterns to compare and project out and I’ll trust that. But… it was my gut that got me out in August 2007, not charts.

The thinking I have right now is that today is risky. There is more downside risk than upside potential. Right now the path of least resistance is down. Other than a sigh of relief rally, what is fundamentally out there that could justify a modest move upwards that could be sustained?

After the next two weeks if we haven’t hit new lows the overall environment will be a little more stable and little less risky and I’ll feel more comfortable being in even if it’s at slightly higher levels.

Looking at the charts I posted yesterday I have to remind myself that things don’t happen in two weeks. Sometimes it’s a year. Heck, some are saying that the 2001 – 2007 bull market was nothing more than a sucker rally from the bursting of the dot com bubble! Now that’s one amazing sucker rally.

And coming full circle… Where to from here? I look forward to finding out. OK, time to head to the State Fair and forget about the end of civilization as we know it. I’m hungry.