Markets To Obey The Law Of Gravity

The Universe has been theorized about by many incredibly brilliant cosmologists, such as Carl Sagan, Albert Einstein and Steven Hawking.  While certain concepts remain hypothesized and theoretical, one constant is omni-present:  The Law of Gravity.

The Law of Gravity determines so many things we observe in the universe such as Newton's Laws of Motion.  In fact, planetary alignment also is a little understood factor in determining certain events in the financial markets.  For more on how planets affect markets, click here:  http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.

For the record, despite the fact that we've been calling for a crash for months, I still have NOT abandoned that position.  Some of the reasons are articulated here:  http://markostake.blogspot.com/2010/10/die-hard-markets.html. 

But today, some new very relevant information came to bear.  The Philadelphia Banking Index (BKX) has broken down and is asserting downside leadership.  Earnings reports from General Electric (GE) today were very disappointing.  Bank of America (BA) is under pressure as a result of the under-reserving for loan losses.  In fact, of the top 6 volume leaders this morning, 5 are financials and all are getting slammed.  Without a vibrant financial sector, the market can NOT advance!

In addition, the stock market appear to have completed a 50% correction of the bloodbath it took in 2008-9.  From a high of about 14,000, the Dow Jones Industrial Average (INDU) has now bumped its head at 11,000, a retracement of roughly half of the waterfall it endured all the way down to its low of about 8,000.

If the Dow should have a roughly equivalent slam it could lose another 6,000 points which would take it to a next stop of 5,000.  (It dropped from 14K to 8K, now may decline from 11K to 5K).

For the very short-term, we remain cautious on Gold and the precious metals mining sector, although this industry group, and commodities in general, are poised for the long-awaited upside explosion  http://markostake.blogspot.com/2010/10/gold-and-precious-metals-miners-set-to.html. 

Maximum downside is very limited to probably no more than 10%.  Upside potential remains massive and, despite some risk, it's worth keeping positions.  We continue to expect an ultimate high for Gold of $5,000 per ounce at the very least.  The rules of thumb we can use to project this level, are articulated here:  http://markostake.blogspot.com/2009/12/gold-1200-is-it-too-late-to-buy.html.

Happy Investing!

Marko's Take