So Much for 2009

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Includes: DIA, QQQ, SPY, XLF
by: John Whitehall

So much for 2009.

I just looked at the market and had a flashback.

Remember when you were a child, sitting on the merry-go-round, and everything was pleasant until that one kid thought it would be funny to push it faster and faster? And it’s tolerable for about five seconds, prior to the nausea? Then you just want to cry.

That’s how I feel now.

The maniacal laughter that usually accompanies my reading of the news headlines is currently escaping me, as there is not a shred of good news out there, save for the fact that people are paying less and less for gasoline to fuel their soon-to-be-repossessed cars as they drive to their non-existent jobs.

I wish I were kidding. Last month a close friend of mine showed up to the car dealership where he had been a salesman for five years, dressed and ready for what little work there was to perform that day, and arrived just in time to see the flatbeds pulling away with the remaining inventory.

This market is entering full panic mode.

Unintentional predictions I didn’t want to come true

If you smack someone once in the face, it will hurt. That occurred in September/October. Smack him again, and it will hurt again. This occurred in mid-November. Raise your hand back again, stare him in the eye, and he will experience fear as he once again expects the sharp pain… and will probably try to defend himself. That is happening now.

I inadvertently, sarcastically, and with no intention of accuracy called our current scenario nearly two months ago. I now present you with a direct quote from an article I wrote that was published on November 21st:

The reality that I am staking my entire reputation on this sentence has hit me, but nevertheless I must express to you that I fully believe that we will not see the ‘Dow 5,000’ that some analysts are hinting at for shock value. Unless things get unexpectedly nasty in the next six months – and when I say “unexpectedly” nasty, I don’t mean more layoffs nasty, I mean losing Bank of America and Citigroup and two dollars-to-the-euro nasty – I just don’t believe it will happen.

Fear be damned, I’m still buying. So what if I’m still holding it in February. Find me a crystal ball and I’ll do something different.

Bank of America (NYSE:BAC) and Citigroup (NYSE:C). That was intended to be a joke. An exaggeration. A worst-case, borderline impossible scenario.

Crap.

Nearly every investor is sick and tired of bailout headlines, poor earnings headlines, layoff headlines, and at this point headlines in general. However, the fear and panic that we experienced before (i.e. two months ago) is being resurrected in a big, bad way right now. Banks are dropping like flies, leaving many to wonder how many, if any, major banks will be left at the end of this crisis (however far off in the future that may be). The new-found uncertainty about the viability of our entire economy is not faring well for the markets.

What makes this whole situation worse is the perception – dare I say hope – that many investors clung to that 2009 would somehow be better, more promising, and definitely more profitable than 2008. So far, we have little reason to believe such an idea.

Market prices need to watch that last step

Take a look at this chart of the S&P 500 over the past year (click to enlarge).

Anyone who reads this as a bullish chart is obviously long and attempting to rationalize his position.

What is currently taking place is 50 million investors holding their collective breath that this 800 level holds up over the next few days. I’m not going to delve into the dozen or so technical reasons that this market could absolutely s*** the bed, I’m just going to focus on one.

If the market bounces here, at or around the 800 level (which I expect it to do, to some extent), we need to see a very strong, sustainable bounce. If this thing goes up and hits its head on 900, it could fall back down the stairs.

Exasperated markets, hope, and 80s music

I don’t know where we’re going. But I sure know where we’ve been. Hanging on the promises and the songs of yesterday. I have not made up my mind.

But here we go again.

Who would have thought an adaptation of lyrics from a song by an 80s hair band would have so much significance?

I wish I didn’t have to play out these possible scenarios. Unfortunately, the past week or so has left me no such choice. People are panicking, and analysts are saying anything that comes to mind, whether it makes sense or not.

Last Tuesday, while oil was trading around $38 per barrel, I heard an analyst say we could see it go as low as $34-$35. Seriously? Who in the hell would that surprise? That’s an intraday move lately.

A little disclosure: I’m long oil. I’m also long stocks. I’m long all sorts of things and my words in that article, “so what if I’m holding in February” might just turn into April. Readers, I must say that I am confident in my assessment of possible scenarios, but not very confident in which one is going to take place. I never want to insult your intelligence by transforming into an investor’s weatherman and declare that the market “could go up or could go down”.

Unfortunately, we’re very, very near a critical direction point and that’s exactly what is going to occur.

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