Dow Jones for the end of the year?

http://www.ritholtz.com/blog/2009/02/dow-jones-industrial-average-long-term-chart/

Check out the link above!

I was considering the argument that there will be stabilization/recovery at the end of 2009. On a fundamental analysis, that is probably the most ridiculous thing Ive ever heard, however for some Dow theorist the bullish argument does hold some weight. Look at the chart in the link posted above. I was actually looking at the same exact chart earlier in the day before that blog post came out. I was thinking the same exact thing! Considering long term support, maybe the end of the year will see bounce off support. However, as I have been studying the ways of a historian recently, Ive decided to back test all the way back to the great depression on the Dow. A few things popped into mind as to why the bullish scenario won't pan out.

Bearish Reasons:

1. The financial markets in late 20's and early 30's were not as complex as ours. Our current crisis has many more systemic problems that the great depression could have had.

2. Based off the Dow chart, prior to June 1929 up up until September 1929 you have a bullish trend followed by an approximate 3 year period of a downward trend. If this recession is just as bad as the depression then we will should see 2009 as a another year where Dow will continue its slide.

3. Fundamental considering the job markets, investment, housing etc... all fundamentals are still crap... enough said about that point.

4. Sentiment is still uncertain, I have no source for this, but I know a few money mangers who are still all on cash positions waiting for things to be a bit clear before actually investing in anything.

Bearish Counter Arguments:

1. This Great Depression Comparison is not relevant as monetary policy is more advance and fiscal policy (stimulus packages will work...) ...

my response to that=> I think that monetary policy has been crap for 2008, though I do not fully understand Bernake's strategy of keeping rates so low as to spur something (though i recently bought a book on the great depression, will get back to you guys on that later). Last time that happened, the last president of the Fed Reserve (Greenspan) took lots of crap for causing this current recession. Fiscal policy.... look at whose had organzied the past past stimulus plan... a president of a failed oil company, a secretary of treasury who experience were in investment banking!? ... how about getting someone to work on a plan who actually understand how markets work... Lets hope Obama will be a better manager...

2. Mid term support from 1997 to 2009.

my response => I think the author of the link above tried to use volume as a indicator for a bullish argument as he circled it. I always thought that a large spike in volume followed by peaking off volume trends showed continuation of the current trend. Hence support could possibly not hold.



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Summary

Overall I am still bearish for the year. In terms of the Dow. Usually I don't like to consider the Dow do its price weighted nature and its tiny constituents list. However since its been tossed around in the media so much, people watching the Dow might actually affect, so why not talk about it.

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Stay tuned:

My next blog should be on growth prospects and where it will be coming from... The United states or Asia... who will be leading the recovery...

until then... Happy Blogging!

Chinese stock market before & after Spring Festival

The Chinese stock market is getting more and more independent during the financial crisis. The changes in global market does not have direct impact to the Shanghai Stock Index. Nevertheless, most stock prices was falling dramatically for the last two seasons as well as the index. However, the index went pretty strange for the week before Spring Festival (Chinese New Year). The index was going up and down without big changes. It was either open high then falls or open low then rises. Although the K-line graph was keeping a little growing everyday, the index went down on the last day - January 23rd - of the year (according to lunar calender) before the market close for Spring Festival.

The Chinese stock market close from January 24th to February 1st for Chinese New Year. There are a lot of discussion of how the market will move after Spring Festival. Everyone is hoping the market will gets better, since 2009 is the year of ox, which in Chinese is the same as bull, which let people are hoping the "bull market" is coming back. Furthermore, the last week before the market close, the Shanghai Stock Index was doing horizontal price movement, which is usually a sign of changing directions. The index has been going down dramatically in 2008, everyone is hoping this is the sign of going back up. However, considering the financial crisis, it is hard to believe the market will get better in early 2009. Besides, the scary depreciation last year has killed everyone's confidence completely; the market will not get better without people start investing again.

Investors in China are hoping the government can save the stock market by put more money in, and announce new policies. However, because of the global effect of the financial crisis plus the huge expense during 2008 (Olympic Games, Sichuan Earthquake, Snowstorm, and other disasters), the Chinese government is really lacking of money for the stock market. Moreover, new policy will not work that well as well. There was a Tax cut on stock exchange in September, 2009. It only creates a positive effect for couple days, then the market went back down again. Investors realized that the market will only warm up again if the global market gets better. Therefore, the Chinese stock market will get better in the year of ox is really doubtful.