The market in free-fall

First, my apologies for again harping on the dismal state of the market. I’m not trying to be boring; believe me, I’d much rather be reporting on something that’s a lot more interesting and useful to my readers. However, I feel it’s my fiduciary duty to impress on you how serious this downturn is and how likely it is to continue.

I mentioned last Tuesday that the Dow Transports (DTX), generally considered a leading indicator, broke major support. Two days later, the Dow followed suit. It’s now trading at over a 10 year low. Since my charting service doesn’t carry Dow data any further back, I can’t even give you the next support level.

The S&P 500 broke major support today, closing at 743. There’s minor support at 670; next major support is in the 470-480 range. Ugly.

Sector indications
Looking at sector ETFs shows most either breaking major support levels and/or making new all-time lows. (Note that ETFs are relatively new inventions and most haven’t been around for more than several years.) All sectors are sucking big-time except for the metals. Gold bounced off of $1000/ounce and if it starts to trade above that, I’d be very bullish on it. As mentioned before, the pure gold play is the GLD, an ETF that holds gold bullion,* but the gold miners represented by the GDX is also doing well. (I’d wait until it tops $39 resistance before buying.) The only metal that has been outperforming gold is silver. One way to play it is to buy the SLV, the silver ETF.

Other market indicators
Two stocks that are considered market bell-weathers are Berkshire-Hathaway (BRK.A) and General Electric (GE). GE is down 85% from its $60 peak. It just broke $9 support. It’s next support level is at $7.55; below that, there’s no safety net. The Oracle of Omaha’s managed fund (aka Berkshire-Hathaway) has broken through several support levels and is sitting right on its next major support at 75,600, 45% beneath its all time high. One CNBC analyst today said that at a P/E ratio of 15 the company is still way overvalued. A P/E of 10 is more inline with his estimates. That means the stock has to drop another 33% ($25,000) to reach that value. Now that’s really ugly.

One good news/bad news scenario is playing out at Cabela’s (CAB), an in-store and online retailer of outdoor wear and sporting goods. The company beat analyst expectations last Friday–the good news. The bad news is that they did it by offering fire arms at fire sale prices. One analyst thinks that this surge in sales could be a reaction to a change in gun policy by the Obama administration. That’s one explanation. Another could be that people are fearful that a possible depression could result in an increase in theft, and they are buying guns to protect themselves and their possessions. I sure hope it’s the former and not the latter explanation.

Tomorrow I’ll have a “meatier” blog. Again, my apologies for another gloomy prognostication but please don’t shoot me–I’m only the hapless messenger.

*According to CNBC, the GLD holds so much gold bullion that it’s now the seventh largest holder IN THE WORLD!

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