The U.S. Stock Market plunged about 4% across the board today as worries continue to mount regarding the crisis in the financial sector. Over the weekend, the government asked Congress for $700 billion for the bailout plan. That sent the Dollar into a tailspin as it is clear that U.S. government debt will rise at an unprecedented pace.
Whether or not this bailout plan is needed or not is not the issue. The financial markets are in a tailspin, and going forward, it is clear that the U.S. economy, and likely the global economy, will be weak in 2009. The next U.S. administration, whether it is Obama or McCain, will have its hands full, and you can pretty much forget about any kind of tax break next year.
As a result of the Dollar weakness, and the fact that the Treasury will be printing dollars at a fast pace in the near future, commodity prices took off to the upside today. The October Crude Oil contract, which expires this week, was up over $21 per barrel at one point. Gold rose back above $900 per ounce. Treasury yields jumped significantly. Can you say STAGFLATION!? With oil prices appearing set to test $150 again in the foreseeable future, there is no way the global economy has any expansion. A colder than normal winter will send heating costs soaring, and as a result, the holiday spending season will likely be weaker than normal.
I am not in the business of forecasting stock market prices or even direction. But, it doesn’t take a genius to figure out that with the current conditions in place, it will be difficult for the market to go up. Just last week I wrote that the underlying fundamentals suggested the economy and the stock market could get through this current crisis and set up a rally into the end of the year. However, with the Dollar pulling back sharply, Treasury yields rising and Oil prices ready to soar again, it looks like those positive fundamentals were fleeting.
Today is just one trading day, and you can’t really forecast direction with one day. But, alot of other negative things have occurred in the last few days that suggest this market has a lot to overcome.
For you daytraders, keep your trading size small during this period of extreme volatility! The intraday swings will wipe you out if you have not adjusted your trading size.
Stay Cautious!
Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com
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2 comments:
Nice blog and I would like to stop by again. I agree that one needs to stay cautious but just wondering what the lehman brothers bang really means? Is it really a shift in paradigm and the beginning of something new??
Only time will tell whether this is a paradigm shift. The whole situation reminds of the S&L crisis in the late 1980's. We had a brief bear market in 1990, and it took some time for the commercial real estate markets to recover. It cost Bush, Sr. his 2nd term, due to the brief recession, so it will likely cost McCain his shot. Ultimately, we recovered and had the big bull market of the 1990's. What we need to avoid in the future is developing the excesses that we have seen since.
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