Stock guru Jim Cramer says problems abroad and at home could lead the Dow to a shocking new low, as far down as below Dow 8,400 — if a bailout doesn’t emerge from Congress soon.
“There is so much going wrong. The credit markets are vanishing, the earnings are vanishing, and the only hope is a plan that ignites credit markets, forces money off the sidelines and gets this economy and the worldwide economy moving again,” Cramer writes on TheStreet.com.
A lot of America’s problems can be traced directly to big problems in the markets of its biggest foreign customers, like Brazil, Russia, India, and China, he says.
“With the collapse of Chinese growth — they have simply ceased to be importers since the summer — the inflation in India, the war in Russia, and a U.S.-led slowdown in Brazil (although that remains a robust market), BRIC is more like having a brick around your neck than a wind at your back,” Cramer says.
High oil and collapsing financial systems have put the Dow component stocks in a sticky position: No one is buying at home, and no one abroad is buying much either.
“Finally, in a recession like we are having, one can only guess how badly the consumer will be scalded,” Cramer warns. He then lists each of the Dow Stocks and sets price targets for each.
“When you add these worst-case prices together you get Dow Jones 8,378, which, reluctantly, I admit is where we are going if everything fails with the plan, and the economies here and worldwide are left to their own devices,” Cramer says.
Meanwhile, followers of the Dow Theory, the brainchild of the index’s creator, Charles Dow, point to a similar outcome, if through different reasoning.
According to the theory, transportation stocks signal what the broader Dow manufacturing stocks will do next. If shipping slips, manufacturing is next.
And shipping stocks have slipped, reports Bloomberg News, hitting their lowest mark since March 17 on Monday, the day of the 777-point drop.
“When the Dow transports are making new lows, that generally signals more trouble for the markets,'' Frederic Dickson, chief market strategist at D.A. Davidson & Co., told Bloomberg.
“The transports are really a signal of what Wall Street thinks of overall economic prospects.”
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