Written by A.J. Brown

A Rough Economy in 2008?

Last week, I wrote about the so-called January Effect. Historically, during the first five trading days the year, the market rises more than during other time periods. Guess what? This year was vastly different… and unexpected.

In fact, according to David Gaffen at the WSJ, the S&P dropped 5.3% during the first five trading days of January, which happens to be the worst performance during that time period since 1930.

What does this mean?

Well, I’m no prophet, so I will not attempt to predict what the rest of the year will look like. But based on recent charts of the DOW, NASDAQ, and S&P 500, market conditions are looking more and more bearish. Some stocks have been trending down for over 100 days. That is a long time to be trending down.

According to Bill Luby who is quoted in the the same WSJ article referenced above, when the market starts the year poorly, there tends to be a rebound before the year is out. But I don’t know that this will happen this year. We may be in for more surprises that break the historical pattern. Poor performances in key market sectors indicate we may be headed for a slow economy during 2008.

Pay close attention to this trend to see how it plays out over the next few months. Put options may be more appropriate for many trades if a strong bear market begins to take hold. Time will tell.

Best Regards Always,

A.J. Brown

Categories: Trends

One Response to “A Rough Economy in 2008?”

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