Weak earnings reports, negative guidance and credit fear will drag Dow Jones Industrial Average down to 11,000 by the end of the year
Alan Hershey
Oct. 20, 2007

The earning reports are dismal. They are creating a massive anxiety in the stock market. The worse is that the guidance from the cop rations are clearly looking South one after the other.

The recession may have started while no one is calling the ‘R’ word yet. That is the worst time for the stock market based on historical precedence. The market goes way before anyone realizes that recession is here and is nasty.

The stock market is worried about three things. The liquidity driven easy credit is off the table. The unwinding of the credit bubble has the potential of dragging the real estate market and the general economy into a depressed state.

Second, the corporate earnings can tumble if a recession is in the cards. The guidance from corporations confirms some validity to the fact that recession is in the making.

Third is the possible bottom in dollar. Ridiculous as it may seem, markets behave like a pendulum. With all bearishness around, US dollar is forming a bottom here. A higher dollar will not allow the corporation to earn larger profits from the international operations.

According to some quantitative models the sentiment is set right to start a massive bear market. Perhaps the US Presidential election will be fought next year based on domestic economy and not the Iraq war. According to some analytical models, weak earnings reports, negative guidance and credit fear will drag Dow Jones Industrial Average down to 11,000 by the end of the year.

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