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March 11, 2010
Protect Yourself From Dow 8,500
October 08, 2008I'm raising my unemployment rate forecast from 7% to 7.5%-8%, and I'm pushing my market bottom forecast out six to nine months, into 2009.
I believe the U.S. recession is going to last for at least two to three quarters. It could even be five to six quarters when it's all said and done. (It really depends on the strength of the coordinated world effort to fill the $5 trillion black hole of bad debt.)
The acceleration in the economic contraction has caused me to lower my market forecast, as well. I'd say we're likely to see Dow (DJI) 8,500. And, as is true anytime a bubble has burst, the overshoot could be 5% to 10% below those levels.
Folks, this is the reality we're facing. The minor economic chest pain we felt six months ago has turned into a heart attack.
And this level of disease is not priced into equities -- earnings expectations for 2009 are still way too high. For example, Wall Street's is forecasting S&P 500 (SPX) earnings at $94 per share in 2009 -- a 14% gain from 2008. I can tell you that it's going to be closer to $72 a share.
We will head lower as reality gets priced into stocks. I honestly believe we'll hit 8,500 on the Dow, and you need to prepare your portfolio now so that you have buying power when the time comes to be brave.
That time is coming, but it ain't now.
Toby
P.S. Investors with buying power will have the opportunity to make historic profits when the market does bottom. In the meantime, you must hedge your portfolio, or you risk losing it all. At ChangeWave Investing, we have a number of great short-side plays that will keep us profiting all the way to Dow 8,500. Join us today to get in on these plays.
Tobin Smith is the founder of ChangeWave Research, the editor of ChangeWave Investing and ChangeWave MicroCap Investor and a contributing market analyst for Fox News Channel. His market commentary can be found in the ChangeWave WaveWire and he provides more specific recommendations and advice through his ChangeWave Investing service. Click here to learn more about ChangeWave Investing.
