Falling Below 13,000 is a Big Deal

This economy and these markets are in trouble. And, the trouble is not nearly over. Anyone who thinks that we have weathered a storm is fooling himself. There was no surprise when we dipped below 14,000 a month ago. There should be real concern now that we have fallen below 13,000. It looks now as though the subprime muck will really take this economy down big time and that we are only a small way along the way down.

It would surprise almost no one were one or more banks to fail entirely – and pretty soon. There will certainly be more and more foreclosures, a weaker and weaker dollar, and major declines in retail sales this season. A bank default, or more than one, will be a big shoe to drop in the midst of all this.

The Dow has fallen 1,210 points or 8.53% since it hit its all-time high of 14,198 on October 11. That’s already a significant drop. But, coming down below the 13,000 resistance level, as it did today, signals the strong possibility that we can move into free fall, all the way to or through 12,000. That’s a 15% drop. 20% is not unlikely. My own view is that we may see a slight rebound in the next day or two, but that we will be at 11,358 before year’s end.

11,358 is pretty scary, but it is just 20% from the October high. If things are really bad, it could go lower still. We are not moving into a happy season. Except, of course, for those who go seriously short. And, that is my recommendation.