Monday, January 19, 2009
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Dow May Fall to 6,000 Should Low Break, Acampora Says (Update1)
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By Elizabeth Stanton
Jan. 16 (Bloomberg) -- A decline in U.S. stock indexes below the 2008 lows from November may trigger a rout that pushes benchmark averages to levels not seen since the mid-1990s, according to two leading technical analysts.
“Hopefully we don’t make new lows, because if we do, all bets are off,” said Ralph Acampora, who retired from Knight Capital Group Inc. in October 2007 after four decades on Wall Street. Should the Dow Jones Industrial Average fall below the 7,552.29 it touched on Nov. 20, it might tumble to 6,000, Acampora said. That’s 27 percent below yesterday’s close of 8,212.49 and a level last reached in October 1996.
The lows reached by the Dow average and the Standard & Poor’s 500 Index in November are “a very, very significant area” because they are roughly where the last bear market ended in 2003, said John Murphy, chief technical analyst at StockCharts.com and the author of three books on market analysis. “If that’s broken, it becomes very negative.”
Both analysts spoke as part of a panel discussion about technical analysis, which involves making predictions based on historical trading patterns, at Bloomberg LP’s New York office.
The S&P 500 is down 5.4 percent this month, including a 4.1 percent slide this week after profits from Alcoa Inc. trailed estimates and investors speculated banks need capital. After rallying 20 percent from its Nov. 20 low on speculation government spending would revive the economy, the Dow fell as much as 9.2 percent. It rose 1.1 percent to 8,305.75 as of 10:09 a.m. in New York today.
Biggest Drops
Both indexes posted their biggest annual declines since the Great Depression in 2008, with the S&P 500 reaching an 11-year low of 752.44 and the Dow sliding to its worst level since 2003 on Nov. 20. Stocks tumbled as more than $1 trillion in bank losses froze lending and spurred a global recession.
The S&P 500 slipped below 776.76, the worst level of the 2001-2002 bear market, in November.
Acampora, whose career also included decade-long stints at Prudential Equity Group LLC, Smith Barney and Kidder Peabody & Co., said that while the past two weeks are “very disturbing,” he’s still “willing to give it the benefit of the doubt.” He cited the time that has passed since the lows were hit and positive breadth, in which rising stocks outnumber falling ones.
Even if the 2008 lows are not revisited, the market is probably in a trading range comparable to the ones that followed the 1929 crash and the bull market of the 1960s, Acampora said. The Dow average is unlikely to exceed its October 2007 peak of 14,164.53 for at least four years, he said.
Trading Range
After the 1929 crash, the Dow fluctuated between about 100 and 200 until 1950 when it began a sustained move higher. From 1966 to 1982, the average traded between about 600 and 1,000.
U.S. stocks rose yesterday, erasing a drop of more than 3 percent for the S&P 500, led by retailers, technology and energy companies. The S&P 500 sank 38 percent last year and the Dow fell 34 percent amid the worst financial crisis since the Great Depression and the first simultaneous recessions in the U.S., Japan and Europe since World War II.
Among Acampora’s past calls was a 1997 prediction that the Dow would reach 10,000. It rose to that level in March 1999.
Murphy said the November lows are likely to be broken, in part because the dollar’s recent strength against the euro signals lower share prices globally, as foreign equity markets are correlated to local currencies.
“There’s another down leg coming,” Murphy said. “Normally the market comes down in five legs. We’ve come down in two. I think we’re going to test those lows at the very least, and eventually probably take them out.”
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net. Last Updated: January 16, 2009 10:12 EST
Email Print A A A
By Elizabeth Stanton
Jan. 16 (Bloomberg) -- A decline in U.S. stock indexes below the 2008 lows from November may trigger a rout that pushes benchmark averages to levels not seen since the mid-1990s, according to two leading technical analysts.
“Hopefully we don’t make new lows, because if we do, all bets are off,” said Ralph Acampora, who retired from Knight Capital Group Inc. in October 2007 after four decades on Wall Street. Should the Dow Jones Industrial Average fall below the 7,552.29 it touched on Nov. 20, it might tumble to 6,000, Acampora said. That’s 27 percent below yesterday’s close of 8,212.49 and a level last reached in October 1996.
The lows reached by the Dow average and the Standard & Poor’s 500 Index in November are “a very, very significant area” because they are roughly where the last bear market ended in 2003, said John Murphy, chief technical analyst at StockCharts.com and the author of three books on market analysis. “If that’s broken, it becomes very negative.”
Both analysts spoke as part of a panel discussion about technical analysis, which involves making predictions based on historical trading patterns, at Bloomberg LP’s New York office.
The S&P 500 is down 5.4 percent this month, including a 4.1 percent slide this week after profits from Alcoa Inc. trailed estimates and investors speculated banks need capital. After rallying 20 percent from its Nov. 20 low on speculation government spending would revive the economy, the Dow fell as much as 9.2 percent. It rose 1.1 percent to 8,305.75 as of 10:09 a.m. in New York today.
Biggest Drops
Both indexes posted their biggest annual declines since the Great Depression in 2008, with the S&P 500 reaching an 11-year low of 752.44 and the Dow sliding to its worst level since 2003 on Nov. 20. Stocks tumbled as more than $1 trillion in bank losses froze lending and spurred a global recession.
The S&P 500 slipped below 776.76, the worst level of the 2001-2002 bear market, in November.
Acampora, whose career also included decade-long stints at Prudential Equity Group LLC, Smith Barney and Kidder Peabody & Co., said that while the past two weeks are “very disturbing,” he’s still “willing to give it the benefit of the doubt.” He cited the time that has passed since the lows were hit and positive breadth, in which rising stocks outnumber falling ones.
Even if the 2008 lows are not revisited, the market is probably in a trading range comparable to the ones that followed the 1929 crash and the bull market of the 1960s, Acampora said. The Dow average is unlikely to exceed its October 2007 peak of 14,164.53 for at least four years, he said.
Trading Range
After the 1929 crash, the Dow fluctuated between about 100 and 200 until 1950 when it began a sustained move higher. From 1966 to 1982, the average traded between about 600 and 1,000.
U.S. stocks rose yesterday, erasing a drop of more than 3 percent for the S&P 500, led by retailers, technology and energy companies. The S&P 500 sank 38 percent last year and the Dow fell 34 percent amid the worst financial crisis since the Great Depression and the first simultaneous recessions in the U.S., Japan and Europe since World War II.
Among Acampora’s past calls was a 1997 prediction that the Dow would reach 10,000. It rose to that level in March 1999.
Murphy said the November lows are likely to be broken, in part because the dollar’s recent strength against the euro signals lower share prices globally, as foreign equity markets are correlated to local currencies.
“There’s another down leg coming,” Murphy said. “Normally the market comes down in five legs. We’ve come down in two. I think we’re going to test those lows at the very least, and eventually probably take them out.”
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net. Last Updated: January 16, 2009 10:12 EST
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