Top Line: The stock market has come to a place that it must now decide if it's going to go down or if it will put the decline off a little while longer. The stage is set for a large down wave that could take the Dow down through the 10K line. The position we have is that the Dow is ready to drop. If a rally ensues above the 12,750 it may go up a little more, maybe to 12,900. We say, If. More likely, the Dow will cascade downward ever closer to going into four digits below 10K.
The news from Friday was fertile but it is old news. The new news is from the UK where the prime minister (Gordon Brown, in case you don't remember) says that the UK should take over the struggling Northern Rock Bank. The WSJ has a front page article scheduled for Tuesday morning addressing this subject.
The WSJ says that the government may have to take over the company "forcing shareholders to accept a deal that will likely leave them next to nothing; evicting some people from their homes amid a forecast rise in loan defaults; competing with private mortgage lenders; and potentially slashing nearly half of the 6,300 jobs at a company long a source of pride and economic growth for the northeastern English city of Newcastle."
The issue here is whether the government will take a direct position in the current housing situation. Here in the US, the president has signed a law that allows small rebates to be sent to lower end taxpayers to spur the economy. They stop short of getting into the mortgages of homeowners, preferring instead to encourage the mortgage processors to take some actions to help homeowners.
There will be much to discuss this week as the market enters a period of danger. We want to focus on the price movements more than the news this week, but news items like this are sure to be part of the psychology of the market traders.
Thank you for your patience with us last week as we spent more time on our grandson than the market but we are back this week and it should be a good one.