Market Preview 23 – 27 February 2009
After my Thursday posting, “Where to now Brown Cow?”, on the state of the local economy, I received a lot of emails from people who were worried that what I wrote would come true and from others who were already feeling the pain and getting worried that if I am right, it will get much worse.
All I can say is that most of these worries are for the present. What I am worried about is the future. How long it this going to last? As an avid practitioner of Sector Rotation and Economic Cycles, my models are not showing me any signs of a bottom, not at least for the next six months to a year. I know that does not bode well and adds more doom and gloom to my previous posting. I shared more about this sentiment at my Saturday sessions in Jakarta and the faces there told of a more painful story. Malaysia is already hurting very badly as wallets get very tight while the cost of living there remains unrelenting.
I’m afraid there isn’t much light in this tunnel so we are surely far away from the end of it.
After the close on Friday 20 February 2009, DOW settled at 7,365.67, (-100.28 -1.34%) just 79.4 points off the low close of 7,286.27 in 9 October 2002. From the high of close of 9 October 2007 (14,164.53) to Friday’s close, the DOW to date is down -47.99%. On the week alone, DOW lost 6.12%.
This puts the DOW past 1998’s lows and pushing to get past the 27 October 1997 low of 7,161.39. The push past 7,500 was a significant move as it proves no confidence in the market. 7,500 held the DOW up in 1998 and 2003 and prevented a further slide and more significantly, the start of a recovery. In 2009, we have no joy at 7,500.
On weekly candles, DOW completed a Three Outside Down pattern which is a fierce pattern indicating more downside in the weeks to come. March is notoriously reliable for being flat or negative in any kind of market. Only five of the last 20 years has seen March make any significant gains. This is going to set up February 2009 for a poor close.
Why?
Consider that an Eighth (Monthly) Candle Reversal is due in April, which is traditionally the most bullish month of any year, and the no-confidence factor for the last week of trading this month is coming predominantly from the consolidation of generally poor forward guidance from the majority of Q1’s earnings, and that February hasn’t closed well for the last 3 years with each of the last weeks registering losses. The most memorable tragedy being Shanghai Surprise when the DOW lost 412.66 points (-3.27%) on 27 February 2007. Now consider another scary proposition … this year, February 27 is on a Friday … enough said.
The Housing and Construction sector is going to be under the microscope this coming week with the S&P/CaseShiller Home Price Index, New Home Sales and Existing Home Sales reports coming out through the week and Uncle Ben on Tuesday with his Monetary Policy Report.
I am expecting DOW to free-fall further with a few technical bounces here and there to continue its fetish collection of Dead Cats along the way. Monday should consolidate, possibly to a modest upside as bargain hunters do their thing. 7,250 is a soft support which DOW should slice through like a hot knife through butter. Should that happen this week, then watch out 7,000!
On the brighter side of things, this market is a good excuse to stop trading (if you’re a Bull) and learn something …
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Safe Trading & Happy Hunting Always!
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