With so much uncertainty in the markets now and with rates and home prices falling, this news means now more than ever to invest your money in either buying income property or making appreciating improvements to your existing real estate property.

Where is the Stock Market Going Now?
After extreme volatility in the stock market, traders and investors are trying to decide which way the market will head. Kevin Cook, market analyst at Peak6 Investments; and John Lekas, chief executive at portfolio manager at Leader Capital shared their views. They had vastly different views, and Lekas even sees the Dow going to 4200-5000 by mid-2011.
Cook Sees a Cyclical Recovery
Cook is still bullish on the market, even though he expects the sovereign debt crisis to persist for many years. He expects the S&P to trade in a range of 1,140 and 1,240 this summer, but expects it to rise near 1,300 by the end of 2010. This trading range would keep the Dow in the mid 10,000 to 12,000 range. Like many other analysts, he believes the market is still in the early stages of a cyclical recovery.
Lekas sees Dow 4,200-5,000 by mid-2011
Lekas is more concerned with the sovereign debt crisis in Europe and its impact on the U.S. He believes the real story is the rise in the Libor and expects a lot of pressure on the U.S. government to compete with that rate. He further warned that the VIX is back in full force and sees the Dow falling near 4,200 to 5,000 by the second quarter of 2011.

Lekas wasn’t impressed with the nearly $1 trillion plan to stave off Europe’s debt crisis.
“We don’t think it’s enough. It’s kind of like feeding an alligator breadcrumbs,” he told CNBC.
As for U.S. interest rates, they’re headed higher, he maintains.
“The real story here is Libor. It’s going up a lot more than people expect,” Lekas said. The London Interbank Offered Rate is what European banks pay each other for loans in dollars.
Three-month Libor has risen to 0.497 percent, from 0.484 percent yesterday, according to data from the British Bankers’ Association, the steepest rate since July 24. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, was nearly the widest since Aug. 13, Bloomberg reported.
“We think that goes higher,” Lekas said.
“That’s going to put a lot of pressure on the U.S. government to compete with that rate. That will push U.S. Treasury rates up.”

Rising rates are bad for stocks, of course. And so are bailouts.

“What’s the next bailout?” Lekas asks. “Are we going to give China $6 trillion-$7 trillion?”

Others agree that stocks are in a fragile state.

What Do the Charts Say About Dow 5,000?
Using technical analysis to forecast a drop of this magnitude is tough at this point. There aren’t any clear chart patterns forecasting this drop. A head and shoulders pattern predicted the 2007/2008 crash, and an inverse head and shoulders pattern predicted the 2009 bottom and bull market rally. It is possible a head and shoulders top could form, but it is in the early stages of developing and yet to be confirmed. The target price of the pattern would measure to about the 5,000 level.

Just the Beginning of the Selling?
Many investors who study Elliot Wave Theory believe the next wave of selling is about to begin. This wave is called Primary Wave 3, and would be the 3rd of 5 total waves. Wave 1 was the massive sell off from the 2007 top, wave 2 was the strong bull market rally seen in 2009, and wave 3 is expected to be a vicious sell off that would take the Dow down to about the 5,000 level. As if Dow 5,000 isn’t scary enough, there would still be a 5th wave of selling that would take the Dow even lower probably towards the end of 2012. This could very well be a repeat of the sell off similar to the one seen just after the Dow peaked in 1930.

This article is written for informational purposes only and it does not reflect the views or opinions of the writer’s place of employment. The writer is not a licensed financial advisor; therefore, the reader should not make any investment decisions based on this article.

Related articles

• Technical Bulls Unshaken by Rout, See Rally Resuming After Drop (businessweek.com)
• Stocks Dropping Near Bottom of May 6 Crash Signal Worse to Come (businessweek.com)
• Slowdown Fear Hits Market (online.wsj.com)
• Asian Stocks Drop Sharply After Big Fall in U.S. Markets (nytimes.com)
• Technicals gloomy but corrections not unusual in recovery (financialpost.com)

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