What Will Turn the Market Around?

10/17/2014 12:01 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

The sharp slide in crude oil and the stock market has investors concerned and MoneyShow's Jim Jubak shares his current outlook for the stock market.

For the week ahead, the big question, obviously, is when does this downturn end, the correction in the small-caps, the 5% to 6% drop in the S&P, so when do we stop. When do we stop going down?

I think the way to look at this is to figure out, well, what turns this around. We've got growth worries globally, not so much the US, but everywhere else in the world.

You've got plunging oil prices. You've got a sense that a strong dollar, which is necessary in the long-term, if there's going to be any hope of getting growth going in Europe or Japan, is going to hurt US sales and earnings from overseas markets, all of that weighing on the market and, after all, we did hit an all-time high on the S&P on September 18 so what turns this around.

We could get sort of external factors. We could get the Saudis to come out and say, “Hey, you know, we looked at this and we're not going to try to grab market share, we're actually going to put a floor under oil prices.” Right now, the Saudis are basically selling oil at a discount, whatever they can to keep the sales going, so you could get something like that. You could get news from China that their economy is picking up. You could get something from Europe or Japan.

I think the problem is that most of that external good news is really unlikely. It's very unlikely in the short-term, say the next month or so, we're going to see OPEC, which is, right now, in disarray, get its act together and restore discipline, so, I think, what you're looking at is, internally, what does it take to turn this market around.

What we've done is pretty much discredit the whole idea of buying on the 4% to 5% dip. We had that dip, the market continued to go down, and, now, we've got a lot of evidence that we're going to see further fall so, just looking at that, there's no real reason to buy at this point. What you're looking at here is a question of when things look cheap enough to take the risk and I think, unfortunately, we're probably looking at a 10% drop in the S&P and the Dow, being a place where people then go, “Oh, okay, I've got my 10% correction, maybe I'll think about buying.”

When we get down there, and remember, we were at let's say 2020, so a 10% drop is down to about 1800 or so, so when we get down there, we're going to have a test and some people will come out and buy on the 10% correction, some people will say, “Well, 10% turns into 12% so I'm not going to buy yet.” So, at that point, we're going to test that and we're going to see where sentiment is and that's, I think, the next big question for this market, which is, will a 10% drop be enough to bring the buyers out or not?

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