Stock Market, Where Do We Go From Here?

By: Mike_Stathis

A couple of days ago I made a couple of posts elsewhere about the market direction.  Basically, what I said (from memory) was that the rally has topped out.  At best, this rally could see 8200, but that's it.  From here, the market is likely to sell off hard once the horrendous earnings come in. 

The question is - will earnings be as bad as expected, better, or worse?  Thus far, they haven't been so bad.  But I expect this to change soon. Over the past month, the market tugged and pulled on every piece of news to the max in order to mount this rally.  In reality, this is what usually happens when you're dealing with a retracement-type rally.  That's exactly what it was. 

Now I'm not saying the market won't or cannot break 8200 from here. Anything is possible. What I am saying is that it is unlikely; that is, unless something major happens like a big earnings surprise from a giant or some huge news. Still, I wouldn't bet on it. Even positive news is likely to send the market lower from here. Why? Because the fundamentals stink.  As a result, the market is overvalued (but note from one of my previous articles that valuation has nothing to do with market timing).

Until the Dow breaks the 8300 level and stays above it for several weeks, the overall trend is still down. And I still feel that new lows will be made. These lows could come in a month or in 2 years, but based on what I see right now, they are coming. At the very least we will retest the lows.  So if you bought in below 7000 like me, you might want to consider taking some profits. Of course your ultimate decision will depend on your strategy and other factors, but I sold my recent positions last week ( AA ) when the Dow was around 8000.

Since I first wrote this piece, on Thursday, the surprise from Wells Fargo gave a big lift to the market. This is the type of news that could push the market up through resistance. However, I would say that more positive news would be needed. Still, in my opinion, the early earnings preview from Wells Fargo should not be taken as a real indicator of the financials or the economy. I view this news as trivial and would expect the bank to show significant problems down the road.

In part, the recent changes to mark-to-market accounting could also provide the lift needed to break through resistance. However, this will not solve the banking problems. It will only create an illusion. The largest U.S. banks are essentially insolvent. Ultimately, I would say the banks will have to be nationalized. The sooner this is done, the faster we can gain some economic stability.

Remember to always stick with things you are most certain of and stay away from uncertainty. Until I see a strong and sustained surge above 8200, I'm betting on more downside. Finally, always remember that the best time to buy during uncertain periods is when you're scared to death, while the best time to sell is when things look good.  Why? Because the market moves in a way to wipe out the sheep.

I want to encourage all who seek the truth and valuable guidance to follow me to my new site www.avaresearch.com (coming in a few days). You won't see me pitching gold or investments to you like others. You will continue to receive nothing but unbiased top-tier insight, education and commentaries.

By Mike Stathis
www.avaresearch.com

Copyright © 2009. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.

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