Market Crash of 2009 - Are We Close?

market crashIt seems as if one main theme is being broadcast over all the networks and even if it is not being said directly, it is usually being implied. Are we going to be seeing a market crash with the stock market? Well, I'm not afraid to say the words (in fact they make up my domain name :) ), but my thoughts with any subject is that if it is worth talking about, and is applicable to our current market, I don't care if it's good or bad for people to hear, I'm going to talk about it. I try not flower things or be careful with my words, because my income is not based on whether or people are actively trading in the market like most analysts that are shown on CNBC.

I like to think of myself as an optimist, so I am sure some people would find it ironic that I run a website called Crash Market Stocks. I am not a "stubborn bear", meaning that no matter what, I am not going to preach you doom and gloom, even when signs point to strengthening markets. If indeed I see the opportunity once again to make money on the long side, I will say so. However, at this current time, and as you can tell if you have been following this site, I cannot find any reasons to hope for good things in the market and in the overall economy for quite some time.

It is unfortunate that our economy has found ourselves in our current economic decay and I feel sorry for those who have been wronged or taken advantage of by the greed of government and Wall Street, but I choose not to join the popular party of finger pointing and blaming, trying to figure out how and when it wrong. Instead, I continue to try and find unique ways to make money in this economy. Yes it can very well be done, and it is being done as we speak. So I'll get off the soapbox now and continue, but hopefully I have conveyed to you as a reader that there are honest, intelligent ways to make money in our current market crisis.

So are we crashing right now? I have had countless conversations with people this week all asking, what should I do? Should I pull all my money out? Are we going to rally? Should I go all out short? Well, every year I continue to ask Santa for a crystal ball and he has still yet to deliver on the request, but there are signs we are seeing in the market that can shed some light and maybe help answer the crash question.

First off, it is hard to predict a crash, because usually it comes when people least expect it. That is why it is so devastating. It comes much like a terrorist attack, and what makes it continually devastating is that people begin to react on fear, which can distort your reasoning more than your worst drunken stated. From there it's a ripple effect which creates a force like nothing we've seen recently, even in our recent large sell off days.

My personal feeling, we're not here yet. I believe we're very close, but not quite. The biggest element we are lacking in our current economy compared to the Great Depression of the 1930's, is the huge deflationary down spiraling. That was the engine behind the crash. We are indeed experiencing deflationary problems in our economy, but I believe it is going to get much worse. This is what I am mainly waiting for as a predecessor to the crash.

Another reason I feel we're not quite there yet is that everyone is expecting it. This recent sell off has lasted too long. People have altered their portfolio, been sitting in cash, putting money in treasuries and other low risk investment vehicles. I think a crash will come much more fierce and hit us when we least expect it. I think we are very close. Many signs are here. Bank failure, wide sector losses, rapid index declines, high trading volume and others. However, we're still early in this economic crisis and have plenty of time to struggle through this.

This leads me into my next thought. I believe we have a very good chance of seeing a strong bear market rally this month. The market performance from Friday does not have much to do with my belief, as I feel it was a very mild victory for bulls, but there are many readings which point to a rally this month. After dealing with GDP and unemployment news, we have some breathing room to work with where the market could gain some ground. Sure, there is always earnings reports and more new bankruptcies(GM) and bank problems, but I believe the government will also take this time to try and gain some ground with confidence. So as I have said in prior posts, I am prepared for either scenarios, rally or tank. Neither scenarios have made me confident enough, at this point, to go from cash to major positions. So I continue to wait.

If we indeed see a rally come this month, I think we could be that much closer to a market crash. Most likely if markets do begin to rally, once again people will believe the market have bottomed out and confidence would return to investing once again (people change their minds do easily). It is in that state where I believe we will see more vulnerability for a true market crash and where I will begin to prepare more fully. If that is the case, these recent lows we have been seeing will be nothing compared to what will come.

As always, these are my thoughts, and yes, we could see the market crash next week or not at all. I just don't see it likely at this point. From the graph below, you see that big turn around at the end of trading on Friday. My thoughts, PPT, but it could have bee a variety of things: Institutions getting in at new lows for some industrial stocks, shorts profit taking, or Uncle Sam. At any rate, it could spur something, but once again, maintaining is the key, so we'll see what happens Monday.

dji 3_6
Gold starting to get some love again as the dollar begins to finally slow down. DGP's Market Club report score is +70, compared to GDX's -55 (get your own symbol analyzed for free, all you need is a name and email, Click Here), so DGP still catches my eye for re-entry. If we see Gold get closer to 900 again, I think I may get in.

I've been getting a lot of inquiries on some of the green energy stocks I've been investing in so I will make a post tomorrow talking about a couple of them as well as a possible good opportunity for those of you looking to make an investment. I like to keep myself diversified and R&D penny stock companies always interest me and can be very profitable if picking the right companies. Also more risky too, so I factor that into my investment.

I've also enjoyed meeting a lot of good traders at the UpDown social network. Great place to interact with some good traders and share thoughts. If you haven't already, check them out and Join The Investing Social Network. It's free and worth poking around.

I hope everyone has a good weekend and is ready for some fireworks next week. It will be interesting to see how we react and if the market actually does get steam behind a rally. Happy Trading and we'll see soon.

3 comments:

  1. Newbie Says:

    FF, here is some of my two-cents:

    1 - I really think the market rally in the last 25 minutes on Friday was definitely shorts profit-taking before the weekend. They'll come back in full force on Monday.

    2 - financials, financials, financials. They're guiding this market lower and until something changes with financials I personally don't see this market rallying. If there is some miracle plan and decent cure for the ailing banks, etc.. and it goes over well, wow... the stock market could fly. Is there such a plan or cure? Not that I can see.

    3 - i think the market is in the process of crashing and it's not done yet. We're down over 50% overall at this point and that's a huge drop.

    4 - as for gold, if the IMF is selling their gold, that could push prices down in the near term. You'll definately get your 900 dollar price target, but it could go much lower. I'm long gold.

    Thanks for the daily posts, etc...

  2. Anonymous Says:

    Hi FF,

    We all appreciate your honesty and telling it like it is in your daily posts.

    I have a question, do you think the financial stocks have been affected by the inverse (bearish) ETFs (as they are really low right now)? If they are, I guess, the trend can be very soon reversed as these ETFs will be sold perhaps pretty soon, and everybody will jump to the bull side. Anyhow, just being curious what your thoughts are on these since you seem to have pretty good experience in general with ETFs...so I'd definitely appreciate you're feedback.


    You're daily website reader,
    Tim

  3. Finance Fanatic Says:

    Good stuff Newbie,

    Tim,
    If and when the market decides to rally, financials will most likely be at the head of the pack since they have taken the hardest hit. The long leveraged etfs would most likely soar, as have the inverse recently. I would also expect the inverse to get hit hard, as we have seen that there is strong vulnerability of the inverse etfs to lose value fast in the face of the rally. This is why I buy puts on the inverse instead of going long sometimes. Just my strategy.