Thursday, November 26, 2009
Dubai's Turkey Day Surprise and the Panic of 1907
These two things are not related except in my own mind. Dubai has rattled the global markets with an admission that Dubai World may need a little more time to pay back some of its debt. This may be the spark to get the next leg down in the stock bear market going. What does this have to do with the Panic of 1907? Nothing, really.
However, I like the chart of this old Dow bear market as a crude road map or fractal-type pattern for the current ongoing bear market in U.S. stocks. The exact dimensions and timing are not as interesting to me as the pattern. I don't know why I like this pattern so much, but my hunch is that it's going to play out in a similar manner.
Here's a sliver of the chart of interest from that time (Dow Jones Industrial Average chart, credit given below):
And here's a 4 year weekly linear candlestick chart of the NASDAQ ($COMPQ) thru yesterday's close:
I think the NASDAQ (and other general U.S. stock market indices) is at a similar point in time compared with the 1907 chart pattern shown above. If I'm right, here's what happens next (following and initial Dow chart from thechartstore.com, a great site for historical data):
The stock bear market is not over. An event like Dubai World essentially defaulting on billions of dollars of debt would be just the type of thing to get markets into fear mode again. It seems like a fairly random and scary event, and such events are always used as an "excuse" for why the market went down again. The only people who could have seen something like this coming are those who have remained bearish all along. Bears are no fun to hang around with and they've been wrong for the last several months, but that doesn't mean they're wrong on the longer term "big picture." I am not currently positioned to profit significantly from a downdraft in the stock market, but I remain interested in shorting the stock market if a decent opportunity presents itself (I believe it will soon).
Gold's initial reaction to the Turkey Day chaos was good. I think people will increasingly flock to Gold once this bear market fires up again. Gold needs a brief rest, but it is the strongest asset class in the world right now and all surprises in Gold should remain to the upside. Happy Thanksgiving!