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Trading Any Market

Dow Jones Stock Market Forecast 2009

Stock-Markets / US Stock Markets Jan 20, 2009 - 06:35 PM GMT

By: Nadeem_Walayat

Stock-Markets Best Financial Markets Analysis ArticleLooking forward a week is hard enough let alone 12 months, Still, the in-depth analysis of October 2008 - Stocks Bear Market Long-term Investing Strategy that accurately forecast a 20% corrective rally (that appears to have terminated) and a subsequent stocks bear market low in Mid 2009, with a strategy of scaling into the market at the rate of 10% of funds allocated to stock holdings per each month that the market is within 10% of its lows. The bear market rally following the November lows has been weak, which does not bode well for stocks, as the hope associated with the Obama rally appears to have evaporated.


The October analysis still stands and has been reinforced by subsequent events that point towards a break of the November low, how low will stocks go? Its a tough call as there is too much subsequent trend to overcome, but Dow 6000 would be the worse case scenario. In fact Dow 6,000 is indelibly printed on my mind, for it was at that price more than a decade ago that Greenspan uttered his famous Irrational Exuberance speech, given that at the time he was seen as the Maestro that spooked many speculators and investors into taking a step back from bullish positions and pondering whether or not a bearish trend was imminent, well the rest is history!. I guess the lesson here is that when the Fed chairman is bearish and warning of doom, be bullish, if the Fed chairman is making optimistic announcements be bearish!

The technical picture is that of a weak market, the corrective rally could resume but it is too weak to imply that any significant trend reversal is taking place hence the lows will very likely be breached. However I do still expect the mid 2009 low to mark a significant low from which there will be an initial strong bounce into 2010 . Now the question is where will the stock indices close by year end ? Well that will depend on where the low is !, as I expect at least a 30% bounce from the lows into December, therefore if stocks put in a double bottom (unlikely) at say 7,500 that would suggest an year end Dow of 9,750 (December 09). On the other hand if the market crashes through the November lows amidst another panic towards 6,000 (appears more probable) then the minimum 30% rally to year end would take the market to 7,800 during December 2009. Which means that the closing forecast for the indices will be much clearer by mid 2009, as the below graph illustrates with the most probable trend as follows:

Dow Jones Mid 2009 Low 6600 - 70% Confidence; End 2009 at 8,600 (During December 2009) - 65% Confidence

In Summary, I do not know at precisely what price level the Dow will make a low during 2009, my best estimate at this time is 6,600, but I am expecting that it will mark the start of a multi-year bull market that will eventually make 2008-2009's price action appear as a mere minor blip, much as the 1987 crash appears on today's price charts.

Two Point Stock Market Investing Strategy for 2009.

a. 2009 will be great time to scale into long-term investments at bargain basement prices. Even if stocks fell by another 20%, that should be more than made up for in subsequent years as great bull markets are born out of the most pessimistic market conditions! My october strategy called for a 10% per month investment of funds allocated towards stock market investing in each month where the index trades to below 10% from its bear market low to date. The October article also listed the key mega-trends to focus on such as Global Warming, Peak Oil, Rise of Asian Middle class and Population growth as the sectors to focus on that are expected to outperform the general indices over the long-run.

b. 2009 Will be an even greater year for trading the markets as was 2008, and in that respect my new site walayatstreet.com will be aimed at position trading including hedge fund style trading tactics which will be going live shortly that aims to freely share my whole trading methodology honed over the past 20 years AND to publicise trade points and ongoing analysis. In the meantime the site lists my existing longer range analysis and commentary.

Remember - STOCK MARKETS MOVE AHEAD OF THE ECONOMIC DATA AND NEWS, Therefore Focus on the Trend rather than the Bad News of which there will be plenty during 2009 as global economies contract.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article. Republished articles must include attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

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Comments

Clifford J. Wirth, Ph.D.
21 Jan 09, 07:31
Economy for 2009

Global crude oil production peaked in 2008.

This will mean that there will be no recovery from the recession.

Global crude oil production had been rising briskly until 2004, then plateaued for four years. Because oil producers were extracting at maximum effort to profit from high oil prices, this plateau is a clear indication of Peak Oil.

Then in August and September of 2008 while oil prices were still very high, global crude oil production fell nearly one million barrels per day, clear evidence of Peak Oil (See Rembrandt Koppelaar, Editor of "Oil Watch Monthly," December 2008, page 1) http://www.peakoil.nl/wp-content/uploads/2008/12/2008_december_oilwatch_monthly.pdf.

Peak Oil is now.

Credit for accurate Peak Oil predictions (within a few years) goes to the following (projected year for peak given in parentheses):

* Association for the Study of Peak Oil (2007)

* Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008)

* Tony Eriksen, Oil stock analyst; Samuel Foucher, oil analyst; and Stuart Staniford, Physicist [Wikipedia Oil Megaprojects] (2008)

* Matthew Simmons, Energy investment banker, (2007)

* T. Boone Pickens, Oil and gas investor (2007)

* U.S. Army Corps of Engineers (2005)

* Kenneth S. Deffeyes, Princeton professor and retired shell geologist (2005)

* Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)

* Chris Skrebowski, Editor of “Petroleum Review” (2010)

* Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008)

* Energy Watch Group in Germany (2006)

* Fredrik Robelius, Oil analyst and author of "Giant Oil Fields" (2008 to 2018)

Oil production will now begin to decline terminally.

Within a year or two, it is likely that oil prices will skyrocket as supply falls below demand. OPEC cuts could exacerbate the gap between supply and demand and drive prices even higher.

Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.

Alternatives will not even begin to fill the gap. There is no plan nor capital for a so-called electric economy. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment. The independent scientists of the Energy Watch Group conclude in a 2007 report titled: “Peak Oil Could Trigger Meltdown of Society:”

"By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame."

With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.

Documented here:

http://www.peakoilassociates.com/POAnalysis.html

http://survivingpeakoil.blogspot.com/

&&&&&&&&&&&&&&&&&&&&&&&&&&&&

The top story of the year is that global crude oil production peaked in 2008.

Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Without oil we cant' maintain the highways.

We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair.The power grid depends on the highways, so the power grid will collapse.

It is time to focus on Peak Oil preparation and surviving Peak Oil.

http://survivingpeakoil.blogspot.com/

http://www.peakoilassociates.com/POAnalysis.html

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&

The top story of the year is that global crude oil production peaked in 2008: Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (December 2008).

Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.

Alternatives will not even begin to fill the gap. There is no plan nor capital for a so-called electric economy. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment.

With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.

It is time to focus on Peak Oil preparation and surviving Peak Oil.

http://survivingpeakoil.blogspot.com/

http://www.peakoilassociates.com/POAn…


David Dzidzikashvili
20 Feb 09, 15:00
Dow Jones

Dow Jones will further collapse, since we as a nation have created illusionary wealth over past decade. Right now we are facing the harsh reality and unfortunately 2009 will get even worse for us. The economic indicators don’t look good, stimulus is not working so far, banks are not lending, retail is on the verge of collapse, food and gas prices started to increase and there are rumors about the possibility of nationalization of the largest US banks. I think 2009 will be the most difficult year for the United States and Dow might even hit 5K-6K in the second half of 2009.


David Dzidzikashvili
20 May 09, 11:31
Dow Jones Index

I believe Dow Jones will further collapse, I also think we are living in times of illusionary economics and the true value of stocks are much lower than it is trading. Bailouts will have small short-term effects, but something bigger needs to be done. The FED also looks like it is running out of options and tools. I thik at the end of summer 2009 or fall of 2009 we will see another sharp decline of the index.


KRISHNA RAO
20 May 09, 23:00
THE DECOUPLING EFFECT ?

1. China is dealing directly with Brazil without the Dollar.

2. Russia has made Euro its primary reserve currency.

3. Spurt of indices on the Indian Market with heavy FII inflows.

4. Export economies re adjusting to markets in China / India / Brazil etc etc..

5. US Consumer as a source of revenue has been badly eroded.

6. Dubai shifting its gold from UK to Dubai.

7. Gold will peak at 1000$ max and then drop to 600$ level.

Based on these points its evident that the Global equity markets will move sideways as US has got off shore manufacturing tie ups and growth will ensue from these set ups , what ever be the industry. The Bottom has been reached for all purposes and the Upswing is on. Get in now or forever miss the boat. Good Luck.


Mark Dorian
26 Nov 09, 21:10
simplistically

as this was a jobless recovery year and

from mid March 2009 of a 6500 on the djia

to today's 10 thousand ridiculous somethin'

and as the holiday Xmas season approachin'

with low consumer confidence, future uncertainties

high unemployment rate (actually 25% of the workforce)

credit crunch, a questionable-dubious housing market

uncertain socio-economic & political conditions, like the whole medical and insurance industries to be govermentalized, eliminated the way we have always known (see Nancy Pelossi) and then the jobless rate climbing to almost 50%

thus the only piggy bank left to reach out and spend for the season is the:

????????

you guessed it;

the phonie ballonie inflated overvalued stock market

when all investors rush to the same exits

the whole stock market collapses naturally

thus my forecast is

between 6500 the low already tested of the year '09 and some 7800 logical value

6500 + 7800 / 2 = 7150 with 10% error on each side

CONCLUSION

djia closes 2009 at 7150 plus or minus 10%

thanks


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