DJIA Outlook for Dec. 15 – 19, 2008
Sunday, December 14, 2008 21:06
Recapping the highlights of the previous week:
- Automakers initially got help via a $15B bailout bill from Congress until the Senate shot it down. Just like their status in the industry, crash and burn.
- AIG (NYSE: AIG) faces $10B from losses on bad bets. You mean AIG put a lot of money on Oscar dela Hoya?
- White House steps in to save the automakers. Will you please make up your mind?
This definitely has been one confusing week for automakers. Just when they thought they were going to get a bailout, the Senate slams the door in their face. But in a last minute save, the White House steps in to make sure they get the help they need.
The DJIA has been reacting accordingly to the same news, rising when hope was in sight, falling when it dimmed. But all that reaction has been translated into more sideways movement, as we have been expecting. In our estimation, it will probably take around a month more before this consolidation will be over and the index would be rising once again.
It is getting clearer that the DJIA is going through an inverted head & shoulders formation. It is one bullish pattern that is welcome to everyone. Will this be the pattern that will trigger the next bull run? Maybe. Will it last for a few years, we don’t know. Given that the US economy has a lot of problems at hand, the next bull run could be short lived and could be good only for a rally. Hopefully, we’re wrong on this point.
It is now just a matter of waiting for the breakout to happen. By our estimations, it would be sometime January. What we would like to see is something similar to how Manny Pacquiao took care of Oscar dela Hoya. We want to see a patient and methodical approach to achieve a rise to higher levels. Otherwise, you would get that flash in the pan, a quick rise only to fall just as fast.
Remember the saying, patience is a virtue.
Recommendation: Buy selectively
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