The bull ran in January, the bull ran in February, but the bull hasn’t run in March. In fact, the bull appears to have run out of air this month, and Tuesday’s 203-point Dow drop has left the 2012 bovine gasping for breath. Tuesday’s drop was the biggest one-day decline in months, and it came courtesy of soft readings on global economic growth, as well as concerns over a looming deadline for Greece’s debt swap with private bondholders.
For some time now, I’ve been warning about the potential downside in equities due to the pervasive problems with Europe’s economy. I think the region is destined to go into recession, and that will be a big negative for the global economy. The European Union (EU) represents about 28% of global gross domestic product (GDP), and a big decline in the EU’s contribution is going to mean more downside for China’s GDP, as well as more anemic growth here in the United States.
As we mentioned last week, the Dow was turned back at the 13,000 level. Since then, we’ve seen a decided wane in the bullish momentum. This wane during March has taken place not just in domestic stocks, but also in stock markets throughout the globe.
As you can see, VT has fallen sharply in March after the huge run higher that we witnessed since mid-December. What this decline tells me is that the recent rally is very likely on its last legs, at least for the time being.
Ironically, I actually want to see more selling to bring stocks back down to what I expect will be support at the 200-day moving average. If move that takes place, we would be shaking out the weak holders and getting set up for another leg higher in stocks. I’ve actually been waiting patiently during the past two months for the market to do just that, as I think it will present investors with a new, low-risk buying opportunity.
The key here, however, is to play things right and not to jump the gun. This March-madness selling may turn out to be the correction I’ve been anticipating, or it may turn out to be a bearish head fake. As the old adage goes, the jury still is out on this one.
Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
