Waiting for Positive Change
Wednesday, November 26th, 2008
By George Leong, B.Comm. for Profit Confidential
It was a stinker last week — stock markets failed to hold at the recent multi-year lows and, in the process, established another new set of lows. This pattern of lower lows and highs clearly indicates the downward trend stocks are in. Major stock indices fell to new multi-year lows, highlighted by the S&P 500 breaking below 800 and the NASDAQ below 1,300. The extreme intraday volatility that has characterized trading over the past few months continues to hold.
The bear is strong. Markets are north of their recent multi-year lows. The NASDAQ is down a whopping 45% this year. The broadly based S&P 500, a good barometer of economic performance, is down 42%, while the blue-chip DOW is faring the best among the four indices, down 36%. Small companies continue to be threatened by the slowdown, as the Russell 2000 is down 44%.
As we move into the last month of trading for 2008, we do not see improvement, worsened by the fact that retailers will continue to see declining sales and inventory build-ups.
The reality is that fear about the condition of the global credit markets and economies remains at the top of most people lists. We are seeing reduced demand for goods and services worldwide. The fact is that the evidence of a global recession is real, and it will have a tight grip on the U.S. and other economic powerhouses such as China and the European Union. China is seeing downward revisions in its GDP growth and this will impact other world economies. If China slides, it could also drive down many economies that are linked.
The positive is that markets rallied, with two straight five-percent to six-percent single-day gains on November 21 and 24, after declining to the lows. Again, the new lows could be a near-term bottom, but unless we see some testing, we cannot say a bottom is in place.
In our view, we feel that investors are waiting for the new administration to take office on January 20, with U.S. President- elect Barack Obama in the hot seat. Yet, even before the transition of power is completed, Obama is already working behind the scenes to try to save the U.S. economy by requesting immediate action from the current government to deal more effectively with the crisis. Our view is that the change in leadership could be positive, but there is absolutely no guarantee that it will be enough to avert a deep recession for the U.S., along with the rest of the world, in early 2009.
Next Post: This Stock Has Growth Power
Previous Post: What My Favorite Investment Analyst Has to Say
Tags: GDP growth, global economy, S&P 500, stock market, U.S. economy
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
