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Looking forward a week is hard
enough let alone 12 months, Still, the in-depth analysis of October 2008 - Stocks
Bear Market Long-term Investing Strategy that accurately forecast a 20%
corrective rally (that appears to have terminated) and a subsequent stocks
bear market low in Mid 2009, with a strategy of scaling into the market at
the rate of 10% of funds allocated to stock holdings per each month that the
market is within 10% of its lows. The bear market rally following the
November lows has been weak, which does not bode well for stocks, as the hope
associated with the Obama rally appears to have evaporated.
The October
analysis still stands and has been reinforced by subsequent
events that point towards a break of the November low, how low will stocks
go? Its a tough call as there is too much subsequent trend to overcome, but
Dow 6000 would be the worse case scenario. In fact Dow 6,000 is indelibly
printed on my mind, for it was at that price more than a decade ago that
Greenspan uttered his famous Irrational Exuberance speech, given that at the
time he was seen as the Maestro that spooked many speculators and investors
into taking a step back from bullish positions and pondering whether or not a
bearish trend was imminent, well the rest is history!. I guess the lesson
here is that when the Fed chairman is bearish and warning of doom, be
bullish, if the Fed chairman is making optimistic announcements be bearish!
The technical picture
is that of a weak market, the corrective rally could resume but it is too
weak to imply that any significant trend reversal is taking place hence the
lows will very likely be breached. However I do still expect the mid 2009 low
to mark a significant low from which there will be an initial strong bounce
into 2010 . Now the question is where will the stock indices close by year
end ? Well that will depend on where the low is !, as I expect at least a 30%
bounce from the lows into December, therefore if stocks put in a double
bottom (unlikely) at say 7,500 that would suggest an year end Dow of 9,750
(December 09). On the other hand if the market crashes through the November
lows amidst another panic towards 6,000 (appears more probable) then the
minimum 30% rally to year end would take the market to 7,800 during December
2009. Which means that the closing forecast for the indices will be much
clearer by mid 2009, as the below graph illustrates with the most probable
trend as follows:
Dow Jones Mid 2009 Low
6600 - 70% Confidence;
End 2009 at 8,600 (During December 2009) - 65% Confidence
 
In Summary, I do not know at
precisely what price level the Dow will make a low during 2009, my best
estimate at this time is 6,600, but I am expecting that it will mark the
start of a multi-year bull market that will eventually make 2008-2009's price
action appear as a mere minor blip, much as the 1987 crash appears on today's
price charts.
Two Point Stock
Market Investing Strategy for 2009.
a. 2009 will be great
time to scale into long-term investments at bargain basement prices. Even
if stocks fell by another 20%, that should be more than made up for in
subsequent years as great bull markets are born out of the most pessimistic
market conditions! My october strategy called for a 10% per month investment
of funds allocated towards stock market investing in each month where the
index trades to below 10% from its bear market low to date. The October
article also listed the key mega-trends to focus on such as
Global Warming, Peak Oil, Rise of Asian Middle class and Population growth as
the sectors to focus on that are expected to outperform the general indices
over the long-run.
b. 2009 Will be an
even greater year for trading the markets as was 2008, and in that respect
my new site walayatstreet.com will be aimed at
position trading including hedge fund style trading tactics which will be
going live shortly that aims to freely share my whole trading methodology
honed over the past 20 years AND to publicise trade points and ongoing
analysis. In the meantime the site lists my existing longer range analysis
and commentary.
Remember - STOCK MARKETS MOVE AHEAD OF
THE ECONOMIC DATA AND NEWS,
Therefore Focus on the Trend rather than the Bad News of which there will be
plenty during 2009 as global economies contract.
Nadeem Walayat
Market Oracle.com.uk
Nadeem Walayat is the editor of
MarketOracle.co.uk.and has over 20 years experience in trading and investing.
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