So much for the afterglow. After an impressive Election Day rally that took the Dow Jones Industrial Average up more than 300 points, the market puked out 928 points in the following two days confronted with a gloomy jobs outlook. Unemployment hit 6.5% and the number of those collecting jobless benefits hit a 25-year high.
“Obviously we have gone way beyond trading fundamentals. It’s all fear,” says Carley Garner, senior analyst and broker for DeCarley Trading. We are bottoming out and seasonally the index is due for a rally from mid-November through March, she says. Until then, she expects to test 8,000, running stops and flushing out the weak of heart. In December, she says we could trade over 10,000. “When this does swing around, it’s going to be hard and fast,” she says, adding that the market always anticipates the recovery by several months.
Paul Rieger, broker for MF Global, is similarly cautious in his optimism. In December, he expects to grind up to 10,100, adding that support is between 8,625 and 8,570. “If we can hold here, we may get a bounce,” he says. Continuing deterioration of the employment situation will continue to weigh down the recovery, which he says will be U-shaped and include as many pullbacks as moves up.