Thursday, October 15, 2009
October has been a dark month in the history of the stock market, and I have a feeling this year may be another example of that. Perhaps not another "black" day, but at least a dark and stormy day.
The current atmosphere in the stock market has a familiar pump and dump feeling to it. The Dow has roared above 10,000 inviting the desperate suckers on the sidelines to jump back in as suggested by Matt Taibbi in his blog.
What will trigger this rush to the exits is not at all clear. Basically just the return to reality should do it. Once the bonuses are handed out at JPMorgan and Goldman Sachs, then it will be time to have a horrible quarter to clear the decks in preparation for another record quarter to justify another round of obscene bonuses.
I think the equilibrium point is 1000 on the S&P. Currently the S&P is close to 1100, so that means about a 10% pullback. In some markets it may be much more worse than that. Just look at the emerging economies like Russia and Brazil represented by ETFs RSX and EWZ. They are up 100% year to date so they could easily fall 40% or more.
The way this will probably get written up by the idiots on the financial beat that look to justify every twist and turn of the markets gyrations, will be that this end-of-year cashing in on profits. So the timeline for a correction could be anytime between now and the end of December. But I wouldn't put any money into the stockmarket right now because I think it has just peaked.
What about Gold?
Gold has been much more stable than the markets. It could very well pull back from its highs, but I would expect it to stay above 1000 which would be less than a 6% pullback from current levels of about 1060. It might even go up further in response to the market volatility. I would not at all be surprised by gold ending the year at 1100. In the long term I think an investment in gold will be the safest, least volatile way to make money in the market.
Posted by Frank Hope at 1:25 PM