Thursday, October 09, 2008

 

Support

The stock market is falling and everyone is talking deflation and depression. Time to pick a place where the market might find support. (Support is a term used in technical analysis of prices which indicates a lower price where buyers might come in.) There is a lot of support in the lower 7000s. The 2003 low and the 1998 LTCM crisis both bottomed in that area. Tonight as I write this markets around the world are collapsing. The Dow futures are down over 200 so we could reach this support tomorrow. As I recently told my mother, the financial world is now electronic and people can read and act on news around the clock so if you have a investing or trading idea you will have to act on it very quickly.

Of course, finding a support level does not mean an end to the bear market. If we reach the low 7000s, and I am pretty sure we will at some point during this bear, then it might be a good time to buy a little or rearrange your portfolio. Also, bear markets have more to do with psychology than economics so we really have no way to judge the extent of the bear other than technical analysis and this is a educated guess at best. That is always why it is a good idea to keep some cash on the sidelines.

Finally I would like to add that I am not happy to have been right about the collapse of the American economy. I just saw that easy credit and monetary authorities who ignore asset bubbles have always lead to financial ruin. You should prepare yourselves for what is to come. I don't know if it will get as bad as the thirties. That depends on how the government responds to the crisis. Just don't take that possibility lightly.

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