Obama market continues...how to invest?

As of today the market has lost 22% since Obama won the election. Can we attribute this decline to Obama? Not completely. There are several factors that must be taken into account.

1) We are in a bear market (this is the prevalent direction)
2) There has been a disruption in natural market activity via the bailout.
3) Least important, some economic news is worse than expected.

However, under normal circumstances there are these considerations

1) We are in the seasonally best time to be in the market (November to January)
2) We only had one appreciable bear market rally (week before election)
3) Commodities have been falling at a tremendous rate (oil especially) and this alleviates inflation.

The fact that this market has been unable to mount any kind of serious move despite the substantial drop in commodities and considering that government intervention has been largely priced in, there remains only one major wild card.

President-elect Obama.

As discussed in a previous article, the week immediately after the election was the worst in history and the trend continues. Every time Obama opens his mouth and bashes "thriving Wall St" or chooses another Clintonista appointee, the market shudders. Investors can forgive candidates for saying outrageous crap during the campaign, but when the rhetoric continues after the election - investors will not be so forgiving.

So in conclusion, we can certainly blame Obama for this decline, acknowledging of course that he is no 100% responsible.

So where do we stand?

The market is now facing critical support at Dow 6,900-7,000. This represents long-term bottoms form the '03 bear market and the '98 Asian currency crisis. These levels will hold with a roughly 85% likelihood. If they hold, expect a massive bear market rally that can propel this market a good 30-40% in the upcoming months. But rest assured, that this will not be a V bottom and these lows will be revisited. So from a strategy standpoint, establishing intermediate longs in virtually any sector (except energy) is a good bet.

IF, IF this support fails and Dow 7000 is breached - look out below. We can discuss it if it happens.

Let me know if you have any questions about the market!

Comments

Post a Comment

Popular posts from this blog

The 2009 credit boom is coming to an end.

Image
The credit expansion boom of 2009 will eventually go down as yet another period of credit expansion promoted by the Fed that will have lead to another predictable bust.   Today, it will be interesting to examine how the various levels of production are behaving under years and years of artificial interest rate suppression.  It will also be helpful to look at charts and graphs examining the business cycle theory and the impact of time preference as taught by Mises. For starters, those new to the concept - a very brief paraphrasing of the general idea. Under a healthy functioning market people's consumer patterns impact their savings.  More consumption equals less saving and less consumption more saving.  In order to progress the society must save such that it can make investments in machinery, equipment, technology, etc if it hopes to increase the capacity of production.   Sure ,you can harvest 10 coconuts a day, consume them by night and repeat the process...
Read more

What is wrong with this country?

I was browsing the latest IBD poll and it finally struck me. I had this idea brewing for the past few weeks now and this particular poll hit a nerve. What jumped out was the age group and who they are likely voting for. Obama / McCain 18-24: 74% 21% The rest of the age groups are more or less even with ages 65+ leaning more for McCain. Those folks should probably avoid leaning - hazardous to their health. Now, if you are a member of this group and are part of the 74% you are probably feeling good about yourself. If you are in the 21% then you are probably used to feeling desperate and angry that your peers ostracize you as if you were the next coming of the bubonic plague. But this number is very telling. Showing to us that a large group of freshly minted liberals, on average still in college, is in a very good position to influence these elections. Enthralled by the concept of "what they want the world to be" and their utopian ideals they hammer their message to anyone willi...
Read more

Cult of Personality Watch: Obama day

I suspect I might have to make a regular piece about this, given the nature of this presidency. Today's CoP moment, brought to you by http://cjonline.com/stories/110908/loc_353922770.shtml Planning under way for Obama holiday The Capital-Journal Published Sunday, November 09, 2008 Plans are being made to promote a national holiday for Barack Obama, who will become the nation's 44th president when he takes the oath of office Jan. 20. "Yes We Can" planning rallies will be at 7 a.m. and 7 p.m. every Tuesday at the downtown McDonald's restaurant, 1100 Kansas Ave., until Jan. 13. The goals are to secure a national holiday in Obama's honor, to organize celebrations around his inauguration and to celebrate the 200th birthday of President Abraham Lincoln, who was born on Feb. 12 1809. At 7:30 a.m. on Inauguration Day, Obama Cake will be served at the downtown McDonald's, and a celebration is scheduled for 8 p.m. to midnight Jan. 20 at the Ramada Hotel and Conventi...
Read more