DOW longer term outlook (1) -How crashes play out in perspective with MA's

The Dow monthly - here you can see technically what has brought the market up, we traded back up to the monthly Bollinger. Actually, we are testing the trendline but before that the DOW tested the 200 month MA (moving average) the first time in decades. The DOW is lacking the SPX but within 2 weeks the 50 week MA will cross the 200 week MA too to the downside that usually triggers another severe downwave at least. In 2002, it produced a 30% drop in the DOW, in 1974 35% and in 1930 80% to pick the more extreme moves but we are definitely in an extreme period.

So, do not get overwhelmed by all the bulls creeping out of their holes. In all severe crises, markets dropped to single digit valuations and we are double digit right now with far too high earnings estimates going forward. The tricky part now is as banks were so far the big earnings draggers, the new accounting rules (legal permission to cook books - these politicians are such idiots - let's see if Obama really brings the change he promised - I do hope he does, yet I am not convinced) that they will show profits, although they have losses as Deutsche Bank did recently.

Slowly, industrial companies will have decreasing profits as well - but right now they might even profit short-term from the sharp drop in commodities, which gives them bigger margins. But the pressure will be to give away some margin as retailers have screwed their credit cards to the limit and now even reductions of limits are due for credit cards. Hence, the holiday season, which makes a big part of the corporate earnings will be diminished - they (and I) expect a negative number actually. Basically consumers have to step back in their consumption habits as corporates will scale dow expenditure as well, thereby the bulk is done towards year-end. Q4 earnings should be far lower, Q1 could bring briefly positive effects as Obama will ignite some tax and infrastructure programs to kick start the economy but still earnings expectations are too high for the next quarters. To be continued...