Friday, March 06, 2009

A Letter I Originally Wrote to Two of My Friends Today About Investing in Today's Market

Here's a letter that I wrote for two of my friends who sometimes ask me for advice/ideas on investing. I got 2/3rds of the way through it and decided that i'd beef it up a little bit with hyperlinks and additional details with the final goal of later posting it to my website. Here's my letter:

I think that these are the following resistance points for the Dow Jones:
6021 (I think that the market will drop to this point)
3708 (I don't think the market will drop below 4100)

If the Dow drops past and closes below any of these points, then it's my opinion that the stock market is saying "lookout below" and the Dow has a chance to proceed to the next lower level. I am not a stock market technician. All I did was look at a chart of the Dow for points where there were significant depressions in the chart indicating selling was high and the chart had a bounce off of a clearly established short term bottom.

By the end of this month, the Treasury's "Stress Test" of major banks will be done. I'm interested in seeing how things pan out. I'm also interested in what the Treasury discloses on or about 23 March in accordance with Fox Business's FOIA info request about emergency loans provided (article link). Also, you might want to pay attention to economic statistics reported on national news. So far, economists are over optimistic and missing the mark on estimates. The easiest stats for you to follow are those related to the unemployment rate. The "nationally reported" unemployment rate for February was originally estimated at 7.9% but actually came in at 8.1%. If you're interested in the real unemployment rate you can click here for a recent article I wrote about the Bureau of Labor Statistics U-6 unemployment rate. Follow my November article's embedded link to the BLS page with unemployment statistics. Also, here's a link to the economic calender, if interested.

My take is that as long as the average economist/statistician is underestimating business stats, then the stock market doesn't yet have the full pain of this depression priced in.

All the best

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