Longer term, I suspect that the DOW will continue to move slideways within a funnel channel (ie: narrow gyrations at one end, coupled with wider gyrations at the other).
This means that for some time to come, the DOW will be trapped in a trading range between 9,200 and 10,700.
Why 9200? Time and again, money has flowed into the market at pricing levels around this level. Unless then Europe overtakes the US in the equity stakes, this same trend is likely to be revisited again and again.
Why 10700? Several times in recent memory, the DOW has neared this height (ie: within 2 -3%), but has not scaled its level. As a result, each time traders have neared 10700, profit takers have moved in and there has been a pullback.
Others within the HC community would argue that the technical reasons for this occurring have a lot to do with a range of different indicators. I will, therefore, leave the technical forecasting to them on this.
To my way of thinking, however, the DOW (and the wider American corporate community) is suffering (and continuing to suffer) from a crisis of management (both in terms of visibility, effect and, above all else, competency and honesty). Until we manage to sort this out, the DOW will not move in a clearly defined direction.
What, therefore, is required is a range of measures, including:
1) stronger, more effective, and universal accounting standards which will ensure global consistency of financial reporting going forward (ie: financial reports are useless to consider when profits stated as such in Australia, translate to losses in Singapore, need to be capitalised in the UK, and need to be treated as extraordinary items under US GAAP);
2) greater visibility of management, particularly with respect to shareholder management and interaction (ie: too few companies in the US embrace, or even consider, that they are accountable to their shareholders, etc);
3) new, and more effective traetment, of bonuses /share options /salary packaging arrangements for senior executives suchc that there is transparency of this across the board;
4) more effective oversight by Congress, and through Congress, by the SEC, including federalisation of many State controlled Company Law /disclosure practices (a big, big ask within the context of State Rights in the USA); and
5) liberalisation of the US stock exchange system with greater reliance placed on hybrid measures (ie: DOW200, DOW300, S&P1200, etc, as opposed to the DOW30).
On-line, the Australian Financial review is describing the US markets in terms of a "black mood". The reality, however, is somewhat different. Perhaps, for the first time, US investors are asking themselves the following: "Why should we believe? Why should we believe what it is you are telling us?"
The US investment community is demanding accountability, honesty and integrity, and unless they get it, they intend being just as ruthless in their treatment of affected US equities, as Australian investors have, in recent times, been ruthless on CPU, ERG, CML, MAY, to just name a few.
In the future, am I confident about the robustness of the US economic scene? Yes, I am. I am also confident about the continuing future success and primacy of the US equitymarkets. But, above all else, I am confident that this time round, corporate accountability will be practised and demonstrated, and if not, it will be punished. If nothing else, that will ensure that some of the excesses of the past are not again visited upon us in the future. Medium term, however, that will also ensure that the DOW tops out at 10700 (at least, in my estimation).
