The market looks to have an uphill battle this week as it tries to break a two-week losing streak. After ending Friday’s session with a 338 point loss, the Dow is at 8,497 but bulls have to feel deflated after Thursday’s 550 point gain in the Dow did not carry over.
There will be key economic and earnings reports due out this week but the direction we go from here could hinge on what happens with the auto makers. There is talk that they will get a $25 billion rescue package but that is not going to be enough to save them. Even if a bill is rushed through the House and the auto’s get some relief, I still think they are in trouble. Nobody is buying cars these days.
There is some chatter that if General Motors (GM, $3.01) doesn’t get a bailout then the Dow is headed much lower. That really wasn’t hard to figure out because the Dow has been trending lower since the election was settled. The charts have been right on and as we witnessed last week, a test of the lows is inevitable.
The problem with the market is that it has to make a low on its own and the bailout package has just delayed the process of old companies dying and new ones coming aboard. The auto makers are a dying breed and instead of giving them the money for a bailout package, give to the companies who are on the leading edge of technology.
Last week, the Dow lost 5%, while the S&P 500 dropped 6%. The Nasdaq was hit the hardest as the index fell nearly 8%. For the year, the Dow is down 36%, while the S&P 500 is off by 40%. The Nasdaq is down 43%.
Good news will be hard to find and I expect us to start the week lower. November options expire this Friday so there will be plenty of battle grounds being tested.
Rick Rouse
Rick@OptionsMentoring.com
