2 Day Thrashing

Another day, another 5% drop. So after a very nice bear rally to end October, we've had the majority of it wiped out in 2 days. Dow back down to 8700. More importantly, S&P is at 900, a major support line. Will it hold tomorrow?

Unemployment numbers are to be released in the morning and they're expected to be very bad. BUT, I think that's why we've had the 2 brutal days here. Instead of crashing tomorrow, I think we've gone thru the majority of the pain already. I feel so strongly about it I closed my short position today for a small loss. I didn't want to watch another rally and have to wait for it to come back.

Where to from here? I'm completely on the fence. Half of me sees another possible bear market rally while the other half sees us testing the 8200 on the Dow. We have to test 8200 eventually, but will it be in the next week or 4 months from now? We'll have to see.

In the meantime the bad news keeps rolling in. Even Disney reported disappointing earnings after the bell today. Sure, it could have been expected, but they don't usually miss by much.

Until 2009 earnings expectations get down to where they need to be, people think that the P/E ratios look good right now. I read one persons expectations and according to his numbers the S&P could go down to 450. That would be 50% from here!

I'm in no rush to put my retirement back in to the markets.

A piece of advice... if we do rally soon and it'll be an even more impressive rally than this last one, GET OUT. Don't trust it, don't believe it, it's only temporary before the big fall. I hate when I hear people comparing to "The Great Depression", but in this case, a long term bear takes time to work itself out. As in 2 or 3 years. We may not see the true bottom until 2010. I see one scenario where we could go up to 1170 on the S&P during a sustained rally over the next couple of months before falling off to the new lows slowly over the next year.

If we continue to drift down from here, it'll continue to be slow and painful.

We've gotten spoiled by quick little recessions and turnarounds and this isn't going to be that way.

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Speaking of 2009 P/E's, here is a piece of an article written today by Nouriel Roubini a well respected economist that saw this coming as far back as 2006.

For 2009 the consensus estimates for earnings are delusional: current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009 up 15% from 2008. Such estimates are outright silly and delusional. If EPS fall – as most likely – to a level of $60 then with a multiple (P/E ratio) of 12 the S&P500 index could fall to 720, i.e. 20% below current levels; if the P/E falls to 10 – as possible in a severe recession, the S&P could be down to 600 or 35% below current levels. And in a very severe recession one cannot exclude that the EPS could fall as low as $50 in 2009 dragging the S&P500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities.