Wednesday, March 10, 2010

Double dip recession closer then we think?

According to within a couple of months the DOW will be trading even below 6000 points. The DOOM scenario FX painted so well with the following chart just needs to have a few comments.
First of I  would like to say that is one (if not THE one) of my favorite websites to check news and analysis about the Forex markets and hold their opinions by their analysts in high regards and standards.
But their recent post about the DOW JONES Technical outlook makes you want to kill yourself as an investor. Truth to be told, they go by technical analysis so this chart is solely based on this but it shows you how technical analysis can be wrong sometimes (hopefully) in this instance.

Below is a weekly chart of the Dow Jones Industrial Average and its prediction solely based on technical analysis.

In it I drew a green line where my prediction lies. In my opinion, what hasn't been calculated is the velocity of price change and the severance of the recession impact, but now I'm throwing fundamentals in there I know. According to my calculations as you can see above the DOW should be trading around 11K withing a few months and I don't doubt that, since lately there has been a lot of optimism in the markets. So the bounce will be a lot higher, scared investors will return to the markets with the 'it's not so bad after all attitude'. However I do think there is a double dip recession in sight although not so soon as indicated by FXstreet. It will take awhile for the stimulus money to run out and affect the markets that quick. Unfortunately I think this will happen. The upcoming crash will be because of the huge budget deficit and will be far more severe then this recession for the simple fact there will be no bail out money anymore and if there is the public will show ground breaking resistance. A little bit of common sense can see this coming. I truly hope this won't be the case, but with the way things are going it's probably un-avoidable. It would take some great brain-power and superb organization to maybe steer away from such scenario. With the current complexity, arguments and bi-partisanship in the system I don't see this happen at all. But in the end we all hope for the best.



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