The Bottom Is Broken

Alas, the key support levels watched as a possible market bottom failed Wednesday. They were:

• 850 S&P 500
• 480 S&P Midcap 400
• 450 Russell 2000

The three closed Wednesday at:

• 807 S&P 500 (5.1% below previous "bottom")
• 452 S&P Midcap 400 (5.8% below previous "bottom")
• 412 Russell 2000 (8.4% below previous "bottom")

The news gets uglier each day. The latest is that Treasury Secretary Paulson has changed his ideas for what to do with TARP funds, now that $200 billion has been sent to banks that have refused to lend any of it out. The Federal Reserve says the recession will extend well into next year, and expects unemployment to reach as high as 7.6% -- but that's conservative in the estimation of many economists, who are expecting 10%. Last summer's fears of inflation have been replaced by fears of deflation, which is being billed as a more ferocious beast. "Bring back $140 oil!" is a hard refrain to get behind, but apparently prices rising too high beats prices sinking too low.

The trend now is to look at where we are in the investment cycle of emotions. I've gathered two charts representing said cycle. The first is from The Market Oracle (click to enlarge):

The second is from Westcore Funds (click to enlarge):

Looking over those two, where do you think we are?

Comments

[notsosmart:]

the only bottom you can be sure of is the one you are sitting on.there is an abundance of worthless paper to wipe it.i have saved tousands by not buying the "good" stocks & waiting.hold your cash.be wary of the anal sts who call a bottom every other day.think for yourself.

2008 Nov 21 10:24 AM

[Urbane Gori...:]

Darn! And me still in Euphoria mode too! Of course, the Market Desperation sinewave is more applicable to day trading these days ...

Thanks for the article.. jegan

2008 Nov 21 01:58 PM