Big Picture Stock Market Forecast
It is time to put my finger on the chopping block and make some long term forecasts about where I believe the stock market is going longer term. I am doing this for myself in part just to give myself some clarity about where I stand now and then at least I will have a written framework to compare from down the road. This type of forecast is of course by no means guaranteed. Instead it is rough around the edges and subject to change at any time (consider subscribing to email updates for new perspectives). But again, I feel it important to write about this now since I feel it could be a very important turning point.
For the short term I believe we have made a meaningful bottom. I wrote earlier about how it looks like the Dow Jones Industrial Average has hit support at the bottom of a trading channel. I also wrote earlier about how extremely oversold the market is since at least 118 years based on the monthly RSI. We are even more oversold compared to 1933 based on the monthly RSI level. These factors contribute to a train of thought that says we are going to get an enormous bounce in the broad market that may last longer than many expect.
There is zero doubt that the economy is bad now and the banks are still having trouble. There is enough bad news out there to keep most reporters busy for at least another six months. It is almost fashionable to report bad economic news now, deflation bad housing market etc. etc. it goes on and on! But the news is always the worst right near the bottom and the best right at the top. The endless talk about banks and bailouts and stimulus and the morality of it all on main stream financial and news broadcasts is mind numbing. We need to break free from that mind set and focus on the logic and probabilities of the stock market structure going forward.
There was recently (this weekend) a special section in the Financial Times News paper devoted to “The Future of Capitalism” I have to take a contrarian stance to that type of news coverage. Maybe this headline falls in the same ballpark of the famous business week headline in 1980 of “The Death of Equities” ? I think capitalism is alive and well. We just happen to be in a period where we have a greater number of economic challenges than we are used to having. But nothing goes down in a straight line, and this is key.
