Traffic has surged to my blog as of late and I’m sure it has to do with lots of people being very nervous about what is going to happen in the markets this week, as well as searching out others' views on the markets.
I myself did a lot of surfing this weekend and I have to say that those making the case for a rally are few and far between. Most are very negative and with good reason as it doesn’t seem like it’s going to get better anytime soon. Asian markets aren’t looking so hot and I suspect we’ll open down unless the futures did something while I slept.
Here’s what I think are the two most likely scenarios that unfold this week and I’m going to keep this short and simple, as things change so fast in this environment and charts aren’t worth a whole lot right now with all the forced liquidation.
1. We tank. Tank very hard, putting the bottom somewhere around 6800-7000. Remember the markets are a forward looking machine. Whatever you see going on in the markets now is where the market thinks the economy will be in 6-9 months. If this drop happens in 1 or 2 days I think we’ll slowly start to move higher and I doubt you’ll see many analysts calling a bottom. If it’s a slow bleed to these levels then we’ll probably have another 10% drop from there.
2. We move higher with what will be labeled a bear market rally, or a trader’s rally. I positioned myself last week with some long positions, as I believe this is the most likely scenario. Otherwise I wouldn’t have gone long. I did this simply because most people aren’t expecting the markets to go up and some don’t ever think the markets are going to rise. In my experience, which is still limited when measured against others, the market does what the majority doesn’t expect, and most people are buying puts right now.
If we move higher from here I suspect we’ll get back to the 9500 level, and I reserve the right to change that projection depending on how fast we get there. If it happens all in 1 or 2 days it won’t stick.
However if it’s a slower grind up it might have a little more lasting power and could move higher, but ultimately will roll over heading down to form what I believe will be the big move, taking everybody to the cleaners, lights out, never invest again, bear market capitulation finale.
These are the thoughts I’m wrestling with inside my brain and I thought I’d share. Thoughts, opinions, objections?