Market watchers have witnessed a breathtaking drop in stock prices, with the Dow Jones Industrial Average falling 5.7% for the week. Is this a sign that stocks will push lower – changing from what was predicted to be a “V” shaped recovery into the first part of a “W? While anything is possible, I believe it is unlikely that the stock market will revisit the lows formed back in March 2009.

Research performed by sentimenTrader analyzed what happened during similar occurrences when new highs were reached and then erased shortly thereafter. While the periods that followed after a shocking crash were decidedly rocky, only 3 months later the market was up over three quarters of the time.

Even with valid global concerns stemming from the monitory crisis in Greece spreading to other countries, this situation could bode well for US stocks and the dollar-now perceived as safer havens. This, combined with very positive economic news in areas like Industrial Production and Corporate Profits, may make the rout at the beginning of May 2010  look like a good buying opportunity.

I am not predicting a “W” shaped graph at this point; rather I believe the more likely scenario will be some large steps in a staircase gradually trending in the up direction.

Comments are closed.