Stocks are probably going to fall further over the foreseeable future.
Yesterday's new multi-year low caused the Dow Jones Industrial Average ($DJI) to fall out of its approximate 6-week trading range. Would-be buyers were forced to the sidelines because of recessionary signals, uncertainty about the automakers and a complete lack of visibility. Options expiration probably did not help, but I would not list this as a primary culprit.
Some of the causalities of the current environment are not surprising.
Prior to the credit crunch, Citigroup (C) was criticized for being too big and bloated. Now, the CEO appears unwilling to tell employees how things really are, and possibly in deep denial. Some of the problems are beyond Vikram Pandit's control, but as the chief executive, he shoulders the blame for his stock falling below the $5 level.
The testimony from the American automakers would have been funny, if it wasn't so pathetic. A representative from the UAW wasn't any better. The 1970s oil crunch caught the Big 3 with their pants down and history has just repeated itself.
The bailout of Chrysler caused the company to shed one-third of its jobs. General Motors (GM), Ford (F) and Chrysler should develop a strategy that includes getting rid of the corporate jets, consolidating current brands and developing next generation cars that are truly fuel efficient.
There is no doubt that the demise of the Big 3 would cause an additional blow to the economy. I don't think Congress will let this happen. However, taxpayer money should not be loaned without a viable turnaround plan. To do so would only delay the inevitable.
What To Do Now
During the recent trading range, we rebuilt the Focus List with less economically-sensitive companies. While the portfolio will not be immune to further downswings in the major indexes, I generally feel good about what we are currently holding.
This said, I will probably tighten our stop limits over the next several weeks or months. The plan of adding 2-3 stocks per week will continue to be in place, though my expectation is that we will not meet this goal.
There will always be stocks to buy, regardless of what the markets are doing.
