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U.S. stocks are doing precisely what we expected them to do.
One by one, sector by sector, they’re breaking down below critical support levels on the charts … plunging in a virtual free-fall … and signaling the beginning of an imminent, unavoidable, potentially deep recession in America.
Let’s face it: Ours is a debt-addicted society. And as we alerted you on Monday, that debt is being suddenly removed, driving the entire economy into convulsive withdrawal pains.
Each Step Along the Way, We’ve Been
Warning You of This Crisis Far in Advance.
But Now Time Is Running Out.
We told you to prepare for a housing bust many months ahead of time.
We told you to get ready for a mortgage meltdown, and next to brace yourself for a nationwide credit crunch, also months in advance.
Each step of the way, we gave you ample opportunity to get out of the way and take protective action.
But now, time is running out. Now, the very last warning shots are being fired — this time in the stock market itself.
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Just in the last few days, the Dow Jones Transportation Average broke down below its low made in August, the last time the market was spooked by fears of a credit crunch.
And just yesterday, the Transports confirmed their downward path with a second, even more significant breakdown — this time below the 4,500 level, crossing into new low territory for the year.
The message: Don’t be surprised to see the Dow Jones Industrial Average do precisely the same thing.
Indeed, some bellwether Dow industrials have already broken down and are now in a free fall.
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Consider General Motors, for instance.
Over the past 14 months, GM touched down to the $29 level on five separate occasions.
And each time, it bounced back — thanks to new hopes and new promises from the auto industry, from the Fed and even from auto workers.
But this week, it has broken down below the critical $29 level, another signal that the Dow Jones Industrials is headed for a similar fate.
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Or consider Citigroup — a bellwether not only for the Dow, but also for the entire banking and financial sector.
And look how its shares have crashed just in the last few days, plunging through their critical $43 level, and now also in a free fall.
Even more dramatic is the crash in Fannie Mae’s shares. It’s not a Dow component. But it’s the weather vane for the entire mortgage industry, which, in turn is at the heart of the credit crunch that’s sinking our economy.
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Look how Fannie Mae rode the crest of the housing boom, surging from under $20 per share in the mid-1990s to a peak of nearly $90 per share in 2000.
And now, look how dramatically it has broken down — first through its 2000 lows, and now through its low made just last year!
Most important, as the housing bust wipes away the profit gains of the 1990s, look how much further Fannie Mae could fall — to $20 per share, even $10 per share.
All this just goes to underscore the intense vulnerability of U.S. stocks. But it also signals an equally intense reaction from Federal Reserve Chairman Bernanke, the man most determined to stop a recession in a half century, and at virtually any cost …
Even if that means sacrificing the U.S. dollar …
Even if it means driving gold and other natural resources through the roof …
And, ultimately, even if it means causing still more havoc in financial markets as inflation rears its ugly head!
For you, the strategy is simple:
- Use any rally as a selling opportunity for the likes of the Dow Transports, Dow Industrials, General Motors, Citigroup or Fannie Mae.
- Hedge! Use select inverse ETFs designed to go up in value when a particular index falls such as the Short ProShares ETFs, or consider a managed bear strategy.
- Use any dips as a buying opportunity for gold, silver, natural resources, their shares or, for maximum leverage with defined risk, resource stock options.
Best wishes,
Martin and Mike
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, Tony Sagami, and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Adam Shafer, Andrea Baumwald, Kristen Adams, Maryellen Murphy, Red Morgan, Jennifer Newman-Amos, Julie Trudeau, and Dinesh Kalera.
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