Among my trader friends, there has been a lot of speculation as to where the Dow will end up at the end of the day on Tuesday, Jan. 22nd. I decided to write this article to capture my thoughts in this chaotic time. Nearly all of us think the Dow is going to shed 400-500 points intra-day, but few of us are willing to hazard a guess as to where we will close. My personal opinion is that we will end down near the 11,500-11,600 mark. The dow recently broke the 500 day SMA, and is heading towards the 1000 day, or 11,400 mark, at a pretty fast clip. For historical reference, Black Thursday, the drop leading to the Great Depression, as well as Black Monday in 1987, both never crossed the 1000 SMA. If we break that tomorrow, then the issues facing our economy may be perceived to have been worse than these points in history. I don’t think that we will break the 1000 sma.
As far as my game plan for Tuesday, I plan to hold my shares of MO all the way down(most likely). I bought in at $69.97 nearly 4 months ago, and recently purchased more around the $76-$79 price. It is currently at $75 and change, and I plan to hold it for the next year at least, and I will not be deviating, now matter how bad it gets.
Regarding my prediction of how the markets will behave tomorrow, I think we will have a strong sell-off through about noon eastern time, giving us only a 100-200 point buffer between the Dow average and its 1000 moving average. Then, after lunchtime, we will see buying pick up, and we will recover a few hundred points at the most, finally ending down in the 11,500-11,600 mark as mentioned above.
In anticipation of all this, I did some research as to the recovery period between great downturns, such as the one we saw in 2001, as well as the downturn in 1987. It looks like indexes generally recovered their value after approximately 2 years time, with 1.5 years being the average. To contrast this, the great depression, and subsequent second world war caused a 25 year gap in share prices. The moral of the story is that given our modern financial system, downturns should be short lived. So if you’ve got more than 2 years until your retirement, sit tight, and let the panic sellers give themselves a heart attack.
As an additional note, I would like to mention that I believe the price of gold will peak sometime in the next month. Tomorrow, people will most likely be trying to find refuge in commodities, which will simply provide futures traders with a major headache, and give gold and other commodities a nice boost which will provide an excellent peak in value. The markets may well stay depressed through the next six months, in which people will try to hedge in gold, but it will ultimately fall once again to a price more reasonably in line with its supply and demand.
As a final note, despite the chaos that may be present in the financial markets, those of you sitting on a wad of cash may do well to open a brokerage account in the next week and start buying like crazy. These downturns are millionaire makers for people with loads of cash. Buying opportunities like this only come a few times in a lifetime, and if your young, it might be a great time to get in while the getting is good. This might well be the only article on the internet telling you to buy like crazy tomorrow, but I know I will be to back up my statement.
To everyone who already owns stock, don’t panic sell. Your investment hasn’t appreciated or depreciated until you sell, and tomorrow is probably going to be one of the worst days for sellers in many years. In the immortal words of Warren Buffet, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently. ”
Good luck, and god speed..