-- Posted Tuesday, 24 February 2009 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Tuesday, February 24, 2009
“Phenomenally accurate forecasts”
For those who have been patiently waiting for a day of climactic selling to end the bear market, yesterday surely was not it. It was instead more of the same death-by-a-thousand-cuts bloodletting that has halved the Dow Industrial Average since the 30-stock index recorded an all-time high at 14198 in October of 2007. At Monday’s close the blue chip average stood at 7115, down 3.4 percent on the day and 18.9 percent so far this year. Don’t give up hope, though. A respite from the selling could conceivably come soon, since the Indoos are just 232 points from a Hidden Pivot at 6883 that has served as our minimum downside target since January 12, when a bearish “trigger pivot” at 8537 was hit.
We would caution investors against dropping their guard, though, since even if the Dow’s expected bounce from 6883 is powerful, it could still turn out to be nothing more than a bull trap. There is another possibility as well – that the blue chip average will fall to 6883 and keep on going for another 10 to 20 points. That would be an extremely negative sign, since Hidden Pivots as clear and compelling as the one at 6883 almost invariably evince a tradable bounce, however feeble. If one is not forthcoming we would infer that there is still plenty of selling power remaining to push stocks even lower. How much lower? Better sit down for this one, because the next major target beneath 6883 lies at…4670! That would equate to a 67 percent drop from the highs, making it the worst bear market since the Dow shed 90 percent of its value following the 1929 Crash.
Help from Arithmetic
Some investors might be heartened to learn that simple arithmetic argues against a sudden and devastating collapse of the Dow Average. That’s because so many of its component stocks have fallen so low that, when weighted for capitalization, they have practically ceased to matter. One calculation we saw suggested that if every Dow stock currently trading for less than $10 were to fall to zero tomorrow, it would knock the Dow down by less than 300 points; and if all Dow stocks selling for $20 or less were to experience a similar fall, the Dow would shed only about 700 points. What that implies is that, for the Dow to plummet to the 4670 target flagged above, so-far hardu survivors such as IBM, McDonalds, Proctor & Gamble, Exxon Mobil and Johnson & Johnson that still sell for more than mere pocket change would have to crumble. Unlikely, perhaps, but hardly impossible if the economic recovery that most investors will always deem inevitable is not so obliging this time.
***
Rick's Picks publishes a daily trading newsletter for gold, stock, commodity, and mini-index traders 240 times per year. Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Tuesday, 24 February 2009 | Digg This Article | Source: GoldSeek.com
