March 2009

February 2009

Stock Market

All comments and Stock Market Ananlysis are made by Guy Brumley. Guy has been trading the Stock Market daily since 1992.

Trading, evaluating stock prices and predictions

 

Stock Market Commentary 7-01-2009

The DOW gave back 81 points of Monday’s 90-point gain, showing more noise in the indexes. This holiday-shortened week has ADP employment numbers Wednesday and the June employment numbers Thursday.

The expectation is for the numbers to be better. which equates to a little less bad. The economy is still declining, and the indexes are showing a textbook topping pattern.
From the trader’s almanac, Tops are rounded, and bottoms are pointed. The indexes are definitely in a rounded pattern.

The lead news stories for Tuesday “The markets ended the quarter with a 30% gain”, the biggest gain since 1998. I really hate percentages, and I do believe in the adage “Figures don’t lie, but liars figure”.

All the following statements are true about the current market.

  1. The DOW is up 11% for the quarter.
  2. The DOW is up 30% from the low
  3. The DOW is down  4% for the year
  4. The DOW is down 40% from its all-time high
  5. The DOW is down 4% for the month

The problem is the 30% gain from the 6500 low is 1950 points. The total market decline from its all-time high was 7500 points, or 53%, which would imply we need only 23% more to retake the old high. The truth is a 53% gain only brings the DOW back to 9945, not even close to the 14000 we need to repair everyone’s 401K.

The facts about using percentages to calculate gains and losses on the indexes is this:
The maximum loss a stock or an index can make is 100%.
If the top is 100, 1000, or 100,000 a return to zero is “only” 100%.
However, on up moves 100-point gains are 1% of 10,000, or 10% of 1,000, or 100% of 100.

To finish the percentage game consider these scenarios.

If the DOW loses 30% from here, it would lose 2534 points to reach 5913 (A number I think is still a real possibility), and make a new 14 year low.

If the DOW gains 100% from its March low, it reaches 13000, which still falls short of its historic high by 1000 points.

A 100% gain, which is a double, will not occur until unemployment drops back to 4%. How many does this 4% represent?  See!

I will get off the soapbox. Stay on the new highs, FUQI, and PALM, but watch the exits, because this does look like a top.   

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