“For the loser now will be later to win, for the times, they, they are a-changing.” These pivotal lyrics by the popular 1960s singer/songwriter Bob Dylan describe the current state of the U.S. equity markets to a tee.
Let’s review the basics of what has happened so far in the equity markets.
After a strong bullish run in 2009, the equity market entered 2010 on the heels of profit taking. The first four weeks of the year brought the bears out of hibernation as the major indexes stumbled lower. In fact, the equity markets dropped 3% in January. This is despite strong economic numbers cumulating in an impressive GDP. International pressures and uncertainty held the equity market lower into mid-February, prior to a nice rise on positive sentiment. The equity market as represented by the Dow Jones Industrial Average’s (DJIA’s) continued climb was held in check by the heavily followed market indicator known as the 50 day Simple Moving Average. Positive news from American International Group (AIG) gave a swift kick in the pants to the lackluster bulls. This impetus sent the equity markets roaring higher until a high was hit in mid-April. Default fears from Greece and the other emerging markets proved too strong for the U.S. equity market bulls to withstand. The DJIA plummeted lower, not even hesitating for the 200 day Simple Moving Average market indicator. The DJIA proxy for the equity markets was quickly back below the psychologically crucial 10,000 level. A dead cat bounce occurred in mid June, shoving the equity market temporarily higher. This bounce silenced several of the more outspoken bears, but the diehards became even more vocal, calling for doom and gloom. As it turns out, these perma-bears were proven correct as the equity markets again plummeted into the start of July.
The question on everyone’s mind is, will the stock market carnage continue? Let’s take a look at the facts. Most financial companies are at their 52-week lows. This includes the stalwart, Goldman Sachs (GS). The Nasdaq just experienced 11 down days in a row, the most down closes of all time. Oil companies are suffering as the British Petroleum (BP) spill continues unabated. The bearish icing on the cake remains the uncertain situation in emerging markets, Greece in particular. As you can see, uncertainty reigns supreme in the current equity market. Uncertainty and confusion are what bears feast upon. While the equity markets will likely experience sharp rallies before the start of 2011, most signs are pointing toward more pain prior to a sustained bull market.
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