Testing The Lows

Pay attention folks. The next few days are going to give us a good tell on how the market is going to perform this year. The market hates what the government is doing and we are seeing that with the Dow Jones shedding hundreds of points every day. What is the government doing that investors hate so much? Two things: uncertainty and too little stimulus spending.  The market hates uncertainty and the fact is that Geithner has not shed light on the details of his plan to help banks. Without details, it is hard for people to invest when they do not know what is going to happen with the government's spending. Now, to be fair, fixing the banks has no easy solution and it is going to take time to come up with one. But as long as we don't have the details of the bad bank plan, don't expect the markets to have a sustained rally. The second thing scaring investors is the stimulus package. Investors are afraid it is too big and is going to sink the U.S in debt. And more importantly, there is not enough stimulus. Businesses don't like the idea of 40% tax cuts because people rarely spend that money, they save it. With only 60% of the spending going to stimulus, investors are losing faith that the package will actually stimulate the economy.

You hear analysts giving predictions on what they think the market low is going/has been. But you can decide that for yourself in the next few days.

Now, the reason I say that the next few days are going to give us a good tell on how the market is going to do is because we are testing the lows. If the lows hold, then you can rest assured that we have created a bottom and that the market is not going to go much lower. The market has had bad news before and still held the November low, we'll see if the lows hold one more time. This is some of the worst news the market is going to have thrown at it and if the lows hold, we can be optimistic about the future.  

However, if we break the previous low, we could be in some trouble. It shows that the market has not priced in the worst of the news. I would not invest for the short term because no one knows how low the market could end up going. It could be a rough year if the market has not bottomed yet.

So make sure you pay attention to how the stock indexes are doing over the next few days, it will give you a good insight on what kind of investment to make. 

*Well on a funny note… while I was writing this the market finally got some details about the treasury plan and boy did we see a quick rally, I think the market just went up 200 points in 30 minutes all because we got DETAILS on what the government is doing! Be cautious though, quick movements in the market like this almost always overshoot and we see the repercussions the next day.*