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Nadeem
Veteran Investor
Joined: 11 Jul 2004
Posts: 639
Cash Points ££ 13955.74
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 Posted: Sun Jan 07, 2007 1:55 am Post subject: Dow Jones Stock Market Shocks during 2007 |
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We've had almost four years of relative calm in the financial markets. Corporate earnings have rebounded from the depths of the 2000 — 2001 stock market collapse. There have been no terror attacks on U.S. soil. Interest rates have remained artificially low.
But now, even as foreign economies are gaining in strength, the U.S. economy's second-breath — as I call it — is ending. Coming next — a series of shocks in the Dow Jones Industrials that could catch investors with their pants down.
I'll give you some steps to take in a moment. First, let's start with what I see for the Dow ...
Dissonance in the Dow Does Not Bode Well for 2007
Take a look at the Dow Jones Industrials index (bottom of the chart) vs. the Dow Jones Transportation index. Notice that the Dow marched to record highs at the end of 2006, while the Dow Transports turned lower.
This is called a “Dow Theory non-confirmation,” and it's especially bearish for most U.S. industrial stocks. Historically, some 80% of Dow Theory non-confirmations have ended in disasters, with the Dow indices losing as much as 40% of their value. The same is possible this time around.
What could set this off? One possibility is a crash in the dollar, which is already starting. A plunge in the dollar could force overseas investors to yank their money out of the U.S., setting off a row of financial crises:
Banking, already starting to hurt from falling property values and rising mortgage delinquencies and defaults, will get killed.
Currency markets could enter a period of extreme volatility, setting off disasters in the highly leveraged hedge fund industry.
Big U.S. companies already in deep financial doo-doo (think Ford, GM, Delta) could go bust.
I'm seeing subtle but important confirmations that these forecasts are going to be right. For example ...
Investors Are the Most Complacent They've Been in 12 Years!
Crises rarely hit when investors expect them. Instead, they show up when investors are complacent. And that's exactly what we have right now.
Look at my chart of the Volatility Index, or VIX. This index effectively measures investor complacency.
Full article http://www.marketoracle.co.uk/Article199.html |
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