Another recession like 2008?

The Dow Jones Industrial average lost more then 12% of its total value in the last three months.

A sign another recession is coming up? Will it be anything like what we went through in 2008? Most newscasts and articles on this topic claim that it will never be anything like 2008, the main reason being lessons learned from the great recession, banks that are better structured and have more cash on hand and a lower unemployment rate. Over and over again I hear; “This is not 2008”. But it makes me wonder, even with all those figures factored in, how do most analysts come to the conclusion that it will be nothing like we have seen in 2008? There's more turmoil in the world then in 2008, think Middle-East and Europe with their debt problems. On top of that the U.S has built up more debt, so bad the debt ceiling even had to be raised, doing so losing favor with the public. China, Brazil and other merging economies are becoming stronger and stronger, yet they claim it will be nothing like 2008. How about something like 2008 but worse? Something along the lines of the past three months something happened with the global economy. It was recovering at a pretty steady pace, slow but steady, something changed and we all have to figure out where to go from here.

I'm not trying to be all doom and gloom here, but as a trader I have to be cautious where to put my money. To tell you the truth I still believe the economy is recovering only at a very slow and sluggish pace, getting a lash once in awhile from the great recession but the bottom line is that the economy is recovering. I base that analogy on the fact that the unemployment rate is nothing like or heading towards what we have seen in 2008.

But in these volatile times it is hard to determine what works and what not.

Especially last week was a hell of a ride, something I've never seen before. One moment the Dow was down over 400 points then it was up about the same amount, quite a roller coaster ride if you ask me. Many people on- and offline ask me pretty much the same question when it comes to this subject; “what's going on and where should I put my money”. I'd be confident answering these questions under 'normal circumstances' if the banking sector wasn't performing so poorly, especially one giant in the playing field Bank of America, (BAC). 

I always try to be positive in bear markets like these (although it's pretty difficult) and look at it as a big bargain bin of stocks, how low can a stock go before it's cheap enough to buy?

I mentioned Bank of America earlier, take a look at the stock below;

with the help of fundamental and technical analysis and a bit of common sense it should be relatively easy to determine whether or not the stock price is bound for an upswing.

My point is, that I see a bear market as a positive thing, stocks are cheap – BAC being an example. In times like these look at the majority of stocks and compare them to their 'usual performance' under 'usual times' and determine if the stock looks cheap enough to buy. I wish I would have bought some stocks in 2008 because they were so dirt cheap.

On a last note and I really want to emphasize on this fact that I have been saying all the time about the level the volatility index (VIX, VXX) was trading; Since the beginning of this year I said it all along that anything that trades under 20 points is a bargain. The VIX is one of the most important indicators that you should have on your radar when you trade stocks, etfs or options. The VIX and the Dow Jones index give you a general idea where the economy stands, even at a global level; since the economies are all connected.

VIX now trading in extremely high territories and until this index is not going down to in the 20's again (normal trading levels) which will be soon (another reason I recommend a short position on the VXX, the ETF that tracks the VIX) I don't recommend buying any stocks right now, rather buying ETF/ETN's, something that's easier too analyse. Same goes for OIL and Gold (GLD). I see gold rising to the $2000 level by the end of the year... more about that in another post.

About the DOW crash, Mr Roubini and a trade setup for tomorrow...

It seems to me every time the Dow Jones closes lower by a significant amount of points like how it did today Mr Nouriel Roubini, also known as Dr. Doom because of his dire economic outlook, manages to pop up on CNBC throwing salt in the wound, in a 'see.. I told you so' interview.
Mr Roubini, an American professor of economics, mainly famous now of predicting the recession a few years ago warning people about the credit crunch that wasn't taken too seriously at that time, is warning us again for some gloomy times ahead.
He speaks of a double dip recession because all the economic turmoil in the EU, China's slowing economy and Japan that isn't doing so well.
The Dow Jones Industrial Average dropped over 376 points today (-3.6%) , the biggest drop of the year, one of the reasons the German vote on the bailout coming Friday and several other factors like recent numbers about unemployment claims. In the last half hour of the trading session Debbie Downer came on CNBC to advise us all that cash is the safest place to invest. And look at that, he also happens to have a new book "Crisis Economics" that came in the picture.
This event has of course significant impact on the currency markets. The Euro spiked higher today almost touching 1.26 before retreating to 1.2496 where its hovering around at this time of writing. It looks like investors and traders are setting up for what is to come tomorrow.
The difficult part is that it's mixed signals, but some direction if you think about this likely scenario; I believe that the crash today was a overreaction in the markets and I have seen too many times a sharp rebound after such a huge dip. Especially now that the Dow Jones is trading around the psychological level of 10,000 points. There is a good chance the Dow will end up higher tomorrow, I know I am currently in the minority here with this statement. But if everyone was correct there would be no market to trade in right? This picture looks much more believable to me that what Dr. Doom has been painting for us. If the Dow indeed trades higher tomorrow, the EUR/USD trade will be significantly affected, more so then normal because it will be the start of some direction (finally). In that case, I'm expecting a lower EUR/USD price. Once I find a good entry point I'm going short this pair with a 30 pip stop-loss, targeting another 70 pips, just like I did today :)

The video clip of the interview with Mr Nouriel Roubini mentioned earlier in the post.
http://plus.cnbc.com/rssvideosearch/action/player/id/1499492692/code/cnbcplayershare

Double dip recession closer then we think?

According to FXstreet.com within a couple of months the DOW will be trading even below 6000 points. The DOOM scenario FX Street.com painted so well with the following chart just needs to have a few comments.
First of I  would like to say that FXStreet.com is one (if not THE one) of my favorite websites to check news and analysis about the Forex markets and hold their opinions by their analysts in high regards and standards.
But their recent post about the DOW JONES Technical outlook makes you want to kill yourself as an investor. Truth to be told, they go by technical analysis so this chart is solely based on this but it shows you how technical analysis can be wrong sometimes (hopefully) in this instance.

Below is a weekly chart of the Dow Jones Industrial Average and its prediction solely based on technical analysis.

In it I drew a green line where my prediction lies. In my opinion, what hasn't been calculated is the velocity of price change and the severance of the recession impact, but now I'm throwing fundamentals in there I know. According to my calculations as you can see above the DOW should be trading around 11K withing a few months and I don't doubt that, since lately there has been a lot of optimism in the markets. So the bounce will be a lot higher, scared investors will return to the markets with the 'it's not so bad after all attitude'. However I do think there is a double dip recession in sight although not so soon as indicated by FXstreet. It will take awhile for the stimulus money to run out and affect the markets that quick. Unfortunately I think this will happen. The upcoming crash will be because of the huge budget deficit and will be far more severe then this recession for the simple fact there will be no bail out money anymore and if there is the public will show ground breaking resistance. A little bit of common sense can see this coming. I truly hope this won't be the case, but with the way things are going it's probably un-avoidable. It would take some great brain-power and superb organization to maybe steer away from such scenario. With the current complexity, arguments and bi-partisanship in the system I don't see this happen at all. But in the end we all hope for the best.