Friday, April 15th, 2016

Stocks: Have we hit bottom ?


With the unemployment rate bolting to 8.1% and 600,000 jobs being lost every month US economy is in a severe recession. This in turn has kept the stock market from making any promising advances. Last week SPX broke down below 700 levels the lowest in 12 years. Technical picture is now bearish and not sideways as we have seen since last October 2008. With decisive closes below 700 one has enough reason to believe this not the end but the beginning of another leg down. All moving averages are above the major indexes now.

With the recession in its 15 th month , longer than  but 2 downturns since 1945 everything seems to be getting worse. Indexes are hitting lows , jobless rates hovering near 10% in many states, and one in eight homeowner in foreclosure or behind in mortgage payments its not a pretty picture. But its all real and is happening to the whole nation.

But recessions come and go and this one will end too. Economist are keeping a watch looking for signs of recovery. There are  2 thing that will happen. Employers will start hiring temporary workers and those who managed to stay in part time work will get more hours. That is the first sign of recovery.

Once foreclosures are leveled off and inventory of unsold homes reduced we can start seeing bottom of this housing led recession. Those numbers will show up everywhere. These stats are vital in looking for a recovery and with all the resources thrown at the recession by current Obama Administration and Obama’s stimulus package and other reforms, it may just work and the market will take a cue.

Where does the stock market stands? Well DJIA and SPX have been cut in half almost since October 2007 highs with stock market crash of 2008. This has been a worst bear market perhaps since Great depression. How far this will go down?  If the economy keep shedding jobs we could very well see 6000 levels soon.  But to every bear market there is a bull market. Old leading stocks vanish  and are replaced with new leaders and the growth starts and investors  and bargain hunters come. We have not seen the bottom yet but one good sign would be a capitulation day marked by frenzy of selling and injected by a buying binge with spike in the charts.

We will be using the same index option strategies to trade like last time. But right now caution is needed.

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