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If Stocks Are So 'Cheap,' Why Are They Still Going Down?

Posted Nov 20, 2008 12:01pm EST by Aaron Task in Investing
Related: ^dji, ^gspc, ^ixic, SPY, DIA, QQQQ

After recovering from their initial decline, stocks were struggling midday, with the Dow threatening to violate its October low of 7882.

With the S&P and Nasdaq having failed their "retest" yesterday, the Dow is almost certain to follow suit sooner vs. later. Many market watchers believe a retest of the October 2002 closing lows of Dow 7286, S&P 777 and Nasdaq 1114 are likely before this brutal bear market ends.

"I think it's pretty reasonable to look to the '02 lows as the next support area," says John Roque, managing director and technical analyst at Natixis Bleichroeder. "But ultimately, the market will find support at a lower level than that."

Roque predicts the S&P will hit 680 and the Dow the high 6000s before this downturn is over.

As to the claim stocks are "cheap" and long-term investors should be buying, Roque has a simple response: "Have they stopped going down? If they haven't stopped going down, they're not cheap. If people have no confidence to own [stocks], they're likely to go lower."

In other words, the habitual bottom-pickers are going to get burned yet again.

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