Black Thursday, 23 October 2008

US Stocks are trading 21.8 times profit. Profit has peaked.

On 23 Oct, history will repeat itself. A Black Thursday.

Wall Street Capitulation

Wall street is facing capitulation. The index is dropping even after a ban on short selling on 799 financial stocks. This indicates that genuine selling of stockholders are in the process and will get worse with time. Furthermore, when the ban on short selling cease to be in effect, there will be a further fall in stock prices.

The $700 billion bailout is not going to help the DJIA from dropping. The rise in risk averse requires higher returns on the stocks which means that a lower stock valuation is needed for genuine buyers to snap up "bargains". Now that the beginning of the subprime crisis is already over, there will be further stages of deterioration of the US economy, particularly the Main Street.

For the DJIA to reach below 10000 is highly likely in my opinion on the basis of high stock valuation, peaked earnings, USD devaluation, inflation and risk aversion.

This bear will be long.