For those of you worrying about your 401k's and wondering about where the stock market may be headed

[gopbuster]

My perspective of experience comes from short, medium and longer term trading from 1997-2003. Made some money, lost some money and eventually took my overall profits, bought a house in 2003 and sold it for a profit in 2005. I still have stock discussion boards I frequent and know who some of the best of the best are. I still know quite a bit about the fundamentals and quite a bit about the technical (charting) end of it as well, although maybe a little rusty ;)
I don't propose to know everything but can maybe give some guidance from this perspective just based on what I'm seeing out there from previous experience.

First, the shorts and sellers have had a hold of the stock market since the downturn back in Oct. 2007 due to both the previous expanse of corporate share price to earnings ratios, then deterioration in fundamentals started coming into view and has deteriorated since.

Nevertheless, I want to get to the here and now, today and pass along just a few important things.

The fundamentals in the overall market have deteriorated to the point to whereas you can throw them out the window other than the things it will take to regain confidence and get it moving again. Until we get a game changing event the bleeding will continue, the sellers still have a grip on this market. Hedge funds and mutual funds are selling, liquidating their positions, both in order to deliver on their customer redemptions, (customers liquidating their positions) & margin calls. Individual investors and others have been liquidating positions as well. Short sellers are still players in this market, too.

Selling begets selling, a cascading effect, just as buying begets buying. Many have bought in on margin (credit) at various levels into the market. Every downturn in the market the margin calls go out and create forced sales within the market in individual investor, hedge fund, mutual fund and corporate positions. There is a GLOBAL margin call going on right now and there are HEAVY losses on people who took the wrong bets.

Fundamentally, the first thing that will most likely provide a game changing event and what traders are looking for is an interest rate cut. This could have the effect of moving the market as much as a 1000 points. Timing is everything with this, the further we stretch to the downside the harder it will pop for a SHORT TERM. As I said before the favor is still to the longer term downside until confidence and fundamentals can begin to be restored on a day to day week to week month to month basis.

Technically: Although I do not have access to the technical trading tools I used too, I have others that do, they go way back and I trust their analysis. Technical's cannot tell you exactly where we are going every day but can give you indications on what to look for, where the support and topping out areas could be and where we could go based on market momentum, buying and selling trends, volumes, etc. Three of, what I consider, to be the most important indicators used are trend lines, moving averages and fibonacci numbers which are proven historically as fairly good indicators.

I don't want to get too detailed here and basically want to pass along where and what the traders are looking at right now...not all inclusive and only generalities, not exact numbers.

Historic areas to look for support in the INDU:

Historically the 50 day moving average and the 200 day moving averages are
places where support can be found. We broke the 50 day at the 11,600 area

Fibonacci: We broke the 38% fibonacci retracement number at about the same time
as we broke the 50 day moving average.

We broke the 50% fibonacci number at about 10,720

We broke the long term trend line set that goes back and carries up from the lows in
2002 and 2003 to where we are now. We broke it at around 10,100

We broke the 61.8 fibonacci number at around the 9800 level

We are now looking at the 200 day moving average for support, which sits at around the 8700 level.

Now, this is what the big boys are looking at. The problem is we just don't know how bad this thing really is over the longer term. I have seen this before but this seems to be worse than any time before as well.

In past times, in global financial crisis, the slow selling down towards and the 200 day moving average is normally the worst case scenario before the big boys come back into the market. They will be screaming and salivating at BARGAINS at in, especially, the blue chip, financially stable & undervalued (price / earnings) stocks. Normally in a sell off like this they are quietly buying and then will come out in force at or above the 200 day moving average as the market becomes very oversold and stretched, technically and the fundamentals provide what they start considering values. 9000 will also a psychological barrier area so it may NOT be able to get near the 200 day before it finds solid support.

Is this total global meltdown? Maybe longer term, but the point here is to watch what happens down towards the 9000 or 200 day moving average if it try's to go there.

If the Fed waits until we get down towards the 200 day MA it would not be out of the question for the tin foil hats to be put on as it would indicate the Feds concerted effort in order to create a buying opportunity for the big boys. And it wouldn't surprise me if that were to be the case.

After we find a bottom in the market, which may take a couple tests of wherever we find that support. It will be somewhat volatile for a little and then a slow flat grind for quite a while until the uncertainty and fundamentals can start working it's magic again.

Remember, there are still good companies out there and the big boys will be looking at p/e ratios to drive the stock market. Blue chips will be in favor again unless this is a total wash out of our financial system as we know it. If we crack the 200 day moving average you will most likely know it's over IMO.

Hope this helps!

[livetohike]

1. Thanks for all this info

:hi: K & R

[electron_blue]

2. thx

[MindMatter]

3. How's your 201K doing?

[gopbuster]

4. Hoping for those who are sitting on 201k's right now..it doesn't turn in to a 101k.painful I know!

[gopbuster]

5. One more thing ...psychologically the big boys want this over with

as quick as possible. They want that initial bottom put in, they want to see that final sell off of capitulation. Don't be surprised if we don't see some sort of bottom put in this week.

My final guess is this will be around the 8900 level unless we get some sort of game changing event before.

It has to find where the buyers are.

[bluesbassman]

6. Nice analysis gopbuster!

And welcome to DU.:hi:

Do you follow the bond market too? I've been watching lately, and it seems to be extra volatile. Do you feel it will track the moving averages in a similar fashion as stocks?

[gopbuster]

8. I don't follow the bond market much...but what I am hearing is

word for word:

"Global MARGIN Call is going on... and that is not in stocks.. that is in the bond market.. margin on some bonds was 80%.. cut to zero almost overnight."

I assume this means there were highly leveraged bond traders and had their positions called.

[bluesbassman]

10. That does not bode well for mortgage rates then.

If bond prices start tanking to to mass selling, then mortgage rates are going to climb. There goes any chance of a near term housing recovery if it plays out that way.

[gopbuster]

12. I t may depend on just how long the washout takes and can start recovering....

If it happens real fast it may not have too much effect on mortgage rates. But that is just a thought, I might be wrong

[bluesbassman]

17. Good point, and that supplies a little hope.

The thing that disturbs me though, is how unpredictable the bond market is at present. Of course, in the broader sense, I suppose all markets are extraordinarily unpredictable lately.

[GoddessOfGuinness]

7. Excellent post...

Thanks! :hi:

[Stand and Fight]

9. Bookmarking and kicking to read tomorrow. n/t

[nadinbrzezinski]

11. The feds will start doing commercial paper

short term, and they are doing it to get the liquidity going

If this works... it will go a long way to stabilize this, in my view

And rate cut... we are waiting for the brits and other markets and they are waiting on us

[gopbuster]

13. Coordination....maybe we will hear more tomorrow. n/t

[nadinbrzezinski]

14. Yep... realize we just went technical

:hi:

By the by... Libor did not go up tonight... it staid high but stable

[bbgrunt]

15. thanks. my 401 is definitely on life support. I keep

thinking there's gotta be an uptick somewhere, but I will eat my shorts when it heads to 9000.

[gopbuster]

20. When it gets there it will be very painful, it will go dead silent,but it should

should turn hard

[snot]

16. in english, for hard-working, DU'er activists whose retirement is now being decimated?

[nadinbrzezinski]

18. that the floor of this may be at 9000

or a few percentage points more.

In other worlds HANG ON...

(and it better be)

by the way the fed is talking to others to get rate cuts world wide... which is one of the signs many a market is looking for

MOre english ... the fed said yesterday that they were thinking of doing commercial loans, highly considering it, will go there, to get the credit going

[gopbuster]

19. lol...i did the best I could...but...

personally..at this point, my opinion, if it was me. It is most likely too late to sell if you haven't already. I feel pretty comfortable that down towards the 8700-9300 the big boys should come back out to play and the short term washout should take place. Word of a rate cut could move the market pretty hard to the upside. At that point it will have to be reassessed.

If it works that way it will still be a long haul to get it back to levels we were over 10,100 or so.

Your 401K people, if they are good will be repositioning your portfolio through all of this and you will need a 5 to ten year time horizon adding along the way.

IN MY OPINION and excluding total collapse.

[nadinbrzezinski]

22. That is why I gave it a floor of 9000... give or take even 500

this is the time to hang tight...

And if I can find it... look for a couple sweet deals when I go see FA

Of course those are for the LONG TERM, as in at least 20 years term

[gopbuster]

39. simple 200 monthly moving average is at the 8475 area, ..so that

could be an area to watch for reversal if it gets too bad. Would almost make sense above there as the circuit breakers would be close to kicking in (although haven't assessed the true number where that would happen) We got the rate cut but most were looking for a whole point.

[Dr.Phool]

23. You should read my new book.

Dow 3600.

We're wading through historic times right now. An interest cut ain't gonna do it. Buying commercial paper-unsecured commercial paper ain't gonna do it.

You're looking at a cascading, world changing collapse, right now. We're going to wake up soon to a world we don't recognize anymore.

If you're still in stocks,....you're nutz.

[gopbuster]

29. Very possible....this post is just meant to give folks things to look for in the short term

Those that aren't out may have a chance to dump on the next possible bounce

At least they have some sort of tools to work with

Do you have a link?

Thanks

[Dr.Phool]

31. I have plenty of sources, but here's a reliable one for now, for starters.

As I said, this is just for starters. The problem is not liquidity, it's credit (unfortunately, I don't know how to post charts), but you can see some pretty scary ones in the Stock Market Watch thread from Tuesday. Banks are hoarding money. They don't trust anyone to pay it back anymore. On top of that, consumers (2/3 of the economy) are borrowed the fuck out.


http://robertreich.blogspot.com/

Monday, October 06, 2008
The Meltdown (Part I)

Global capital markets have seized up. Confidence is evaporating. Put simply, no lender trusts any borrower to repay, fearing that that borrower won't be able to rely on anyone else to honor obligations. Even banks are hoarding cash, unwilling to lend to other banks. Everyone with any savings is heading for the hills -- for gold, for under the mattress, for wherever savings can be watched. We're witnessing a huge international bank run. We have not seen a global financial crisis on this scale since the 1930s.

What's happened? Put simply, the Bailout of All Bailouts has been a dud, at least so far. Most obviously, it hasn't done what it was intended to do -- reassure financial markets that the Treasury and the Fed would have enough money to handle any financial crisis.

So it's everyone and every institution -- and every country -- for itself. Several nations (Ireland, Greece, Germany) have basically guaranteed all deposits. As a result, global capital is moving their way. They're also thereby creating a new form of socialized capitalism. At the rate they're going, these nations will soon own and run their financial markets, and maybe a big chunk of the world's.

I fault Hank Paulson, first and foremost. He never succeeded in explaining to anyone what exactly he'll do with the bailout money -- how, for example, an auction to acquire mortgage-backed bad debt would work, and whether and to what extent he's planning to recapitalize the banking system. Even now, the American public has no idea what he's up to. Nor, for that matter, do many insiders.

Leadership isn't just about passing a big piece of legislation. It's about explaining and thereby gaining trust and confidence from a public -- including a global public -- that's otherwise afraid and confused. A credible and powerful explanation is necessary right now -- about where we've been, how we got into this mess, and how a particular plan (in this case, the bailout), will get us out of it. Yet Paulson has proven himself uniquely unable to explain anything to anyone. George W. Bush, for his part, is hopeless and hapless. Worse than a lame duck, he's a seriously disabled parakeet, with no remaining store of public trust. Ben Bernanke seems like an able fellow but his capacity to communicate is almost as bad as his predecessor's. Congressional leaders are too busy pointing fingers of blame to be capable of explaining much of anything and summoning confidence. And fewer than three weeks before a national election, both candidates are inevitably caught up in partisan wrangling. Obama does understand what's happening, and could calm global capital markets if he were already president. But he is not president as yet, nor even president-elect.

The leadership vacuum could not happen at a worse time. If credit markets remain frozen, we'll soon witness a huge round of business bankruptcies. We're in completely uncharted terrain.

[Dr.Phool]

32. Just another point. Right NOW 2:00am Nikkei down 9.4%, 952pts.

Hang Seng ain't much better.

All Asian, way down. http://finance.yahoo.com/intlindices?e=asia

The last I checked, Dow furures were down over 200 for tomorrows open.

[gopbuster]

34. I've been following Roubini and the "Cardiac arrest" with his drastic

triage measure suggestions so I'm well aware of where we are at.

A poster below mentioned the SPX is within just a few points of it's 200 MMA with no hard buyers in sight so far.

401K's are great for the matching funds but it sure makes it easier when you have better and easier control of your own money. They need to hope for a pop and a dump. It will take continuos reassesment for those who are in to get out at the best possible price.

Scary times indeed

[Dr.Phool]

36. Six months ago, I saw a list of 10 banks likely to fail, soon.

My wife used to work at one of them, and had a 401k, mainly in their stock. This was on a Thursday. I called her at work, and said "Get your money out of there, NOW". She did. The redemption price was based on the following day's closing price.

In the 7 days it took for them to mail the check, and us to receive it, the stock dropped 70%! They haven't been taken over yet, but the stock has gone lower since.

It's now sitting as Krugerrands in a safe deposit box.

[slipslidingaway]

21. Very nice post, assuming you mean the 200 month moving

average, current numbers and hopefully we'll get a bounce before.

exponential moving average - 8798

simple moving average - 8474


Also

S&P today's close 996 - 200 month SMA 992

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=114&topic_id=41830&mesg_id=45354

[gopbuster]

24. O crap..you are right lol...told you I was rusty and mis wrote

numbers are the same though

yes ema...was trying to keep it in laymans term

Thanks

[slipslidingaway]

26. You're welcome and welcome to DU :) n/t

[gopbuster]

27. WOW re: SPX....the SPX trading there is VERY disturbing and interesting

It could be that the answers will come forth fairly soon the with the INDU following.

The SPX is much more accurate with the technicals. Thanks

[slipslidingaway]

30. Article at the link is also worth a read IMO n/t

[gopbuster]

25. EDIT ORIGINAL POST TO READ:

instead of daily moving averages

read MONTHLY moving averages

[nadinbrzezinski]

28. CURRENT, as of before it opens LIBOR

rates

This week Month ago Year ago
Bond Buyer's 20 bond index 5.36 4.62 4.42
FNMA 30 yr Mtg Com del 60 days 5.84 5.60 6.35
1 Month LIBOR Rate 3.93 2.49 5.12
3 Month LIBOR Rate 4.05 2.81 5.25
6 Month LIBOR Rate 3.98 3.10 5.21
Call Money 3.75 3.75 6.50
1 Year LIBOR Rate 4.06 3.13 4.99

[shireen]

33. this all sounds very interesting

now, can someone please explain what y'all are talking about in plain 'ol simple English to economics-challenged DU'ers who are anxious about this financial crisis but don't understand the details about what's going on? Reading all this jargon we don't understand makes us even more anxious.

[gopbuster]

35. lol...i did the best I could...but...

personally..at this point, my opinion, if it was me. It is most likely too late to sell for now if you haven't already for now. I feel pretty comfortable that down towards the 8700-9300 the big boys should come back out to play and the short term washout should take place i.e. the short term bottom. If it moves below 8400 without hard recovery, We are in trouble. Word of a rate cut could move the market pretty hard to the upside. At that point it will have to be reassessed and you may think about getting out of the market until it settles out.

If it works that way it will still be a long haul to get it back to levels we were over 10,100 or so.

Your 401K people, if they are good will be repositioning your portfolio through all of this and you will need a 5 to ten to 20 year time horizon adding along the way.

IN MY OPINION and excluding total collapse.

That is the best I can explain it

[RhodaGrits]

37. we're heading to 8000 -

talked with a guy Monday who is managing literally billions and he said we had no support if it broke 10k and it was just a matter of how long it took to hit 8000. He was half in cash and planning on riding the rest out for a couple years. I'm not even opening my Simple IRA statements. No point.

[MadHound]

38. Thanks, but the markets aren't the be all and end all of our economy

And haven't reflected that reality in a long, long while. Bernanke just cut the rates, but I seriously doubt that this cut will provide a 1000 point bounce.

Frankly, most stocks have been over valued for awhile, now that correction is just catching up with them. The largest meltdown has been in the financial sector, and for good reason, the financial sector has played fast and loose for years, counting on an ever expanding economy. When that failed to materialize, they collapsed in upon themselves, and dragged everybody else down with them.

A floor at 9000, at one time I thought that. But with this sort of panic, the piss poor state of our economy and the ever spreading cancer in our financial sector, we'll be lucky to find the bottom at 8000.

Before the market can find solid footing, we've got to restore the real economy. Until that happens, the market is going to dive, find bottom, and stay there. As far as my retirement goes, well, I've got a diversified portfolio, one that includes alternative energy and foreign stock holdings. This sort of diversity is helping to shield me from the worst at this point, and besides, I've got time for it to recover. Sucks a great deal for those who are either retired or close to retirement. Good luck.