Yesterday’s fall broke statistical boundaries and the DJ rallied. Today’s fall created a new statistical boundary and broke it. Next week we should see a week of basically flat movement. The next down move should be to around 12.500.
I still think this is a short term move, and that the Fed will inject more liquidity responding to a climate of fear and fear mongering. My guess is that the Fed will cut by .5 points, both rates.
There may be other measures by the government to inject liquidity into the economy. At this time the administration is a money junky and each fix will need a bigger fix the next time. At some time, not yet, the economy could suffer an overdose. Depending on the speed of the process that may be the task of the next administration, I am not sure yet about that.
The economic deterioration process seems to have entered its exponential phase. Things that were expected in the near future, are already happening. $100 oil, reduction of home ownership to pre-1980 levels, accelerated destruction of GDP in real terms.
To explain this acceleration you need to think about these processes as fitting a logarithmic curve.
This chart is the representation of x=x*1.06. (By the way, 1.06 is the average rate of growth of the US Nominal GDP from 1929 to 2006).
As you can see, when you are in the area from 1 to 80 it is possible to think that the curve is linear, very little seems to happen. However, all of the sudden, things accelerate and “magical” things happen. These magical things can be good or bad. They seem magical, or extraordinary if you prefer, is that we humans tend to understand normality based on our personal experience. Our personal experience is extremely limited but the illusion of knowing what is normal and what reality is, is strong.
It is important to know is that this process seems to dominate many human activities, from inflation to production of green house gases.
Noon update: So far the low of the day is 13017.38. I missed the turn by 0.6%. Good thing this is not financial advice for trading futures intraday. 13018 should hold next week. If there is interest among the readers I may share the model that allows me to call price movements in the Dow Jones.
Have a nice weekend everybody.
This article is part of the series "Exercise in Market Timing"
- Expect increased volatility
- And we got increased volatility
- Bad News For the Dow (Short Term Bear Fest)
- Dow Jones 400 to 600 more points of pain
- After exiting two weeks the Dow Jones goes nowhere
- Dow Jones at 13,300.02
- Dow Jones at 13,099 should see a rest
- Dow Jones Finds A Convoluted Way to Do Nothing
- Dow Jones Ready for Next Leg Down
- Dow Jones 13,252. Not All Clear Yet
- Dow Jones: Announced 2-day Pullback Over
- Timing The October High And November Bottom Of Dow Jones
Franklin @ November 9, 2007