Wednesday, June 07, 2006

How Low Can You Go?

Here’s the real question:  How far will the stock market go down?  Or, as in Limbo, “How Low can You go?”

The stock market opened strongly on Wednesday, to the tune of about 75 Dow points by midday.  Then something turned it down and the Dow moved down nearly 150 points from there to close down 71.  To be sure, there were enough Talking Fed representatives speaking about inflation, even the old Fed head, what’s his name again, oh yes, Greenspan was testifying before a Congressional hearing.  We want to remind you that the Bond Market has Maintained its gains since last Friday’s weak jobs’ report.  If the Bond Market hasn’t been spooked by the inflation talk, why is the stock market reportedly being spooked by it?

After Monday’s 200 point hit, the media was calling the bottom and then Tuesday reversed into midday trading but closed moving up.  Yes, the stock market was down on Tuesday but the close was well off the lows set earlier.  So, Wednesday was up and the media was proclaiming another bottom was set, only to see selling going into the close and the Dow finished below the magical 11,000 number.  The last few days of trading should have put some fear in the hearts of traders but we will see how Thursday opens.  Given that there is some angst after the close, we may see a down opening.  We don’t recommend buying this but at least it would show some fear.  

We would have thought Wednesday would have been an up day after the way the market closed Tuesday.  Wednesday’s trading goes to show you that when the market wants to go in a direction, you should not get in its way or try to play the other side for those corrective moves.  Now, we are wondering if there are any more brave souls out there to bring the Dow back to that magic 11K number.  

We mentioned in our last post that the pattern was not ready to go down but that quickly changed on Wednesday with the intraday reversal.  We remain firmly bearish as we think this first full run down to the first stop is far from over.  We tried to estimate that point in our Elliott wave discussion last week (look at the June 1 post) and we think that number in the Dow could be very close to 10,000.  Whenever that low comes, we will then estimate a good reversal which could take us back up to around 10,500.  After that we would not want to own Any stocks for several months.  For now, we are content to hold our positions and our cash (in the 401k’s where we have no short alternative).  

Thursday’s trading should tell us much about whether the market wants to go down hard right now or if it wants to wait another few days.  We’ll be back tomorrow to give you our opinion.

Dow Industrials:  10,930.90  -71.24
RYVNX:   21.84
RYAIX:  23.95
TLT:  85.10
BEGBX:  13.51

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