Going down?

Going down?

Going down!

"The captain has turned on the Fasten Seatbelts sign. We are going down!"

It wasn't supposed to be this way. In an average year the market is supposed to make a dip at the end of January and then keep rising until May. Yes, there's usually a little speedbump in mid-February and again in mid-March, but nothing serious.

This is serious. The Dow Jones Industrial and Nasdaq Composite indexes are clearly headed down. Both have wiped out all gains year-to-date. Both have broken below the 50-day moving average, a major "support" level, and the 50-day averages themselves are starting to fall.

DJIA 6-month chart
DJIA 6-month daily chart Nasdaq 6-month chart
Nasdaq 6-month daily chart

In the case of the Dow, it is still about 300 points above the level of the last breakout, around 9900. The Nasdaq, on the other hand, has already broken below its breakout level, around 2000.

Neither index is very far above the next major "support level," the 200-day moving average, 9754 for the DJIA and 1874 for the Nasdaq. If they fall below the 200-MA, all bets are off.

Good news/bad news. Economic news has been decidedly mixed. But the markets at least seem to now be paying more attention to the bad news.

Good news Bad news
  • Earnings season passed with most companies either meeting or beating Expectations
  • Economy is growing at a pretty good clip
  • Consumer confidence is high
  • The Fed is keeping interest rates near historic lows (although my credit card companies don't seem to have gotten the message)
  • 30-year fixed mortgages are just over 5%
  • There's no sign of inflation
  • There hasn't been terrorist attack on US soil since 9/11/01, — The Shrub tells us it's because he's doing such a good job of keeping the homeland safe
  • Dollar is weak, causing imports to cost more
  • Federal budget is completely out of control with red ink as far as the eye can see
  • The economy isn't creating new jobs; we need 150,000 new jobs every month, and we're not even getting one-tenth that number
  • Many manufacturing and knowledge-worker jobs are moving to other countries
  • Unemployment is relatively low, historically, but it is because many people have become so discouraged they've simply stopped looking
  • The trade imbalance just keeps growing, when economists keep expecting it to shrink
  • The terrorists haven't given up — the Shrub keeps telling us it's a really, really dangerous world out there