The Bear Market Rolls In

June 27, 2008

If you’re like most, then the mere fact that the markets will be closed tomorrow comes as a relief. The lack of any positive news and continued stresses within the financial sector along with rising oil prices kept the markets under pressure once again. Investors are now worried that consumers will be forced to pare back on spending to pay for essentials like food and rising gas. With consumer spending making up two thirds of all economic activity, a decline in spending dose pose the threat of a negative impact on the economy.

So are the markets doomed? Well if you pay attention the CNBC’s of the world, then you’re screaming “YES” as you read this. Inevitably, your emotions are exaggerating the situation as you listen to analyst after analyst predicting the sun might not rise if corn prices go any higher! Remember recently when these same analyst where screaming that all the baby boomers where buying all the houses and that the average American was going to have to wait five years to get a house built. Demand was only going higher and higher, at least for far as they could imagine. Almost seems laughable now.  It seems as though that’s where we are in the commodity cycle, and when this occurs we are usually closer to the end of the rise then the begining. That doesn’t mean a crash is going to happen tomorrow, but the more we hear how energy and commodities need to make up a majority of our portfolio, the scarier its gets for traders who are invested heavily in these sectors.

Until then, the common equity markets are at the mercy of rhetoric of OPEC and commodity analyst. Technically, this market remains extremely oversold and due for a bounce. Today the markets did rally off their lows and there is a slight chance this bounce could occur next week, as next week is a holiday shortened week with the 4^th of July holiday, but we suggest you remain cautious as the market is still not out of the woods.

Here’s the NASDAQ and S&P Charts…