Recently the major indices have been rebounding a decent amount despite the overall economic situtations. Have we hit a bottom, is it time to start backing up the truck to load up on all those now cheap stocks?
Quite frankly it is more than likely that we have only seen a little more then half of the downturn. It is typical of most recessions to take 30% or more off the high, which would put the DJIA at a minimum of 9,996 (using the 52 wk high of 14,280) before we could expect a recovery.
Another factor to take in to consideration is the high rates of inflation, pair with the stagnet growth, the all popular buzz word of stagflation. Right now we have seen a short term relief from the commodities bubble falling, however this can only fuel the stocks for so long. It looks as if oil will bottom out at possibly 110-100 range before consolidating and then possibly rising again. As for other commodities, agriculture in general is still on the rise.
Finally we have not seen the worst of the financials yet. There is still a ton of toxic assets that will be further written down as housing prices continue to fall. The housing sector will take a while to recover and with less equity for consumers to pull from, consumer spending will steadily decrease. There is still a pletheria of sectors that have not fully felt the effect of this down turn due to many lagging factors, but that does not mean we are going to avoid it.
Although I could be wrong and we might miraculously enter another bull market, the chances are slim, and at best we will enter a long period of flat to sligthly negative stock movement. My suggestion is go short on the finacial sectors in general, SKF (ultra short financials) is a good play or move you money out to cash or bonds.
Please add you opinions and insights if you have any.
Best luck with your investments,
Styex
