A recent article in the Dallas Morning News states that we just don’t have anything to worry about going forward regarding a “double dip” recession. A double dip recession is one where you go through one recession, the recession concludes, and then it comes back again. Of course, that would mean that the stock market would come tumbling down again as well.
September 14, 2009 edition
“I can now report that it’s time to lift up your melancholy spirits and go find something else to worry about. Double-dip recessions are very rare events.”
“Since WWII, there are really no examples-except 1980-82….”
The writer also points out that, “you would think a 50% upside prance in the stock market would be met with some measure of confidence rather than such an undercurrent of distrust.”
The biggest mistake that the media is making in the reporting of this recession is comparing it to normal recessions and normal cycles. The writer would need to go back further than 70 years to take a look at the full length of the Great Depression to get a better comparison. No, I don’t think that we are spiraling into a depression. I do think that in the least a double dip recession is a high probability.
People are distrustful regardless of the rise in the stock market. There is rampant unemployment, a foreclosure crisis, and consumers faced with mountains of debt. That is not even considering a Congress that is trying to ruin this country through socialistic policies.
To get a good comparison, you can’t look at post WWII recessions. It would be a lot like comparing apples to oranges. This is what makes this situation so dangerous. Yes, people are distrustful. At the same time, people are also hopeful. They are hopeful that the worst is behind us. If that doesn’t turn out to be the case, confidence will be destroyed and that will be the biggest problem the markets and the economy face. Today, at least confidence is on life support after a grueling 2008.
Levels in the Market
I haven’t covered significant levels in the stock market in a long time. (Click here for a description of what I mean by levels.) For the S&P 500, we are starting down a few key levels that are right in front of us. It is a range of levels between 1042 and 1062. The ability for the stock market to get above 1062 and stay there would be a very bullish event.
Isn’t a rise of 55% in the stock market a bullish event in itself? Only if the bear market is over. Thus far, the levels necessary to declare the intermediate trend change from a bear to a bull have not occurred. It would take the S&P 500 getting over and staying over the level of 1119 for that to occur.