Could the Dow Jones Really Hit 1,000?

A recent dive in the market and some pessimistic predictions have investors running scared again. Here's a look at some worst-case scenarios -- and how to prepare.

How things have changed. Just three months ago, all was right in the world. The economy was roaring back to life. The stock market was flying to new highs.

The Dow 1,000 prediction and reactions

It started with the announcement of the government's lawsuit against Goldman Sachs (GS, news, msgs) on April 16, continued with the European debt crisis and accelerated on signs of weakness in recent economic reports. The economy's rate of growth has slowed with the ISM Manufacturing and Non-Manufacturing indexes pulling back slightly on a reduction in new orders. Corporate payrolls fell by 125,000 last month. Consumer and investor confidence has been shaken as fears of a "double-dip" recession have grown. And stocks are down about 10% from their 2010 highs.

Things got so bad that when technical analyst Robert Prechter predicted this month in a New York Times article that the Dow could fall as low as 1,000 -- from around 10,000 now -- the most dour forecast I've heard sounded reasonable to a lot of people.Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 300, 213, {"configCsid": "MSNmoney", "configName": "player-money-articles-16x9", "player.vcq": "videoByUuids.aspx?uuids=9af6d252-c9b9-44ce-bb92-82f06cd996fa,789b1cf1-ca09-47be-a012-c9cbc2d3d22b,322cc6d8-c309-4182-b0ec-5888a891a22c,01d1c159-89b0-4117-a3ac-20665c1065a4,4aca6a8e-1a72-4f55-8f72-e070619a6aa9,00dc2cb4-500d-4d9d-afca-defc0ed4a552,81af29e2-3151-4c57-8ad2-d9720f2c7642,39e41062-5193-4557-ae27-e2914f31d5f1,ba9277b4-87a9-4672-8421-a70bae949378,fea0a1ab-afa7-43f7-b139-64acf766e034,4fb189b3-db70-4249-82c3-5752083c3877,001bcf32-063c-421c-a0de-48d6eb94863c,d5bc3529-53e8-4cc6-b9da-6ba1084aa540", "player.fr": "iv2_en-us_money_article_16x9-Investing-Extra"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=9af6d252-c9b9-44ce-bb92-82f06cd996fa,789b1cf1-ca09-47be-a012-c9cbc2d3d22b,322cc6d8-c309-4182-b0ec-5888a891a22c,01d1c159-89b0-4117-a3ac-20665c1065a4,4aca6a8e-1a72-4f55-8f72-e070619a6aa9,00dc2cb4-500d-4d9d-afca-defc0ed4a552,81af29e2-3151-4c57-8ad2-d9720f2c7642,39e41062-5193-4557-ae27-e2914f31d5f1,ba9277b4-87a9-4672-8421-a70bae949378,fea0a1ab-afa7-43f7-b139-64acf766e034,4fb189b3-db70-4249-82c3-5752083c3877,001bcf32-063c-421c-a0de-48d6eb94863c,d5bc3529-53e8-4cc6-b9da-6ba1084aa540;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');Over the past week, the situation has stabilized, and stocks have posted their best weekly performance in nearly a year. In my recent columns, I've outlined the reasons I believe optimism is warranted. Economic growth, led by investment and spending by the corporate sector, is the most likely path forward. Job creation is getting warmed up. Earnings growth is set to continue. Stocks should rise.

But I don't want to sound like a Pollyanna, and I want to address the fears many investors have. So today I trade my rose-colored glasses for some shades of gray.

Let's take a look at the dark side with two of the more pessimistic forecasters around -- apart from Prechter, anyway. One predicts stock market losses of up to 50% over the next two years; the other expects a long, grinding recessionary environment that could lead to a debt-deflation spiral and a deep depression. Thankfully, each provides ways that you can protect your wealth should his scenario come to pass. Cycles and fate Charles Nenner believes the stock market, like the economy and indeed the universe, is predetermined. In a phone conversation from Israel, Nenner outlined a rather bleak future: Stocks should rise to an important top sometime in September, before a two-year fall.

Nenner's work is based on cycles. His research focuses on uncovering and harnessing the overlapping patterns that are at work in the world. Technical analysis is already something of a dark art. Cycle work is on the fringes of what is already seen by many as a pseudoscience. But Nenner has demonstrated a downright-scary ability to glimpse into the future. And that's why hedge funds and other institutional traders pay top dollar for his insights.

On the surface, believing that markets operate on some unseen wavelength is at once ridiculous and curiously plausible. After all, our lives are controlled by cycles: the cycle of night and day, the workweek, the seasons, the human gestation period of 40 weeks, the tides and the weather.

Though it's not perfect, Nenner's track record suggests he could be on to something. Nenner caught a lot of people's attention when he warned of trouble in 2007 and recommended people stay out of stocks throughout 2008. In February 2009, he predicted a major rally would start "in a few weeks" and take the S&P 500 Index ($INX) up over 1,000. And in April 2009, he said gold would go on to a new high in a year. Both predictions came true.

In a May 31 note to clients, Nenner said that the stock market's rise in late May was a head fake and that another low was due around June 11. The actual date was June 8. His cycle work then showed a dramatic slide lower starting in late June and continuing into July. That's exactly what happened.

Next, Nenner expects an intermediate high for stocks later this month, followed by a late-August slide that retests recent lows and then a strong rebound into September. Though the short-term outlook doesn't seem so bad, Nenner's medium-term forecast is rather gloomy.

After the September bump, the cycles suggest stocks should fall into a major low due Christmas Eve. How major? Think of the November 2008 to March 2009 period. Something like that.

As for a specific price target, Nenner believes the Dow Jones Industrial Average ($INDU) should return to the 7,000 level sometime over the next two years -- which would be a return to the levels predicted if one were to draw a simple trend line based on the average performance of the stock market over the past 50 years. But given the stock market's propensity to overshoot or undershoot fair-value levels, Nenner emphasizes that a drop to as low as 5,000 for the Dow is very possible. (The Prechter prediction put the bottom from 1,000 to 3,000, five to seven years from now.)

The economic context for this outlook is, as you would expect, grim. In Nenner's words: "Expect a weak economy for the next 10 years. We could see big up moves in stocks, but the economy is going nowhere." Think unemployment and deflation -- a scenario I discussed in a recent column, "Will falling prices sink the economy?"Click graphic to see interactive chartMonsanto If the economy and stocks are going nowhere, Nenner recommends that investors focus on tangible assets such as farms, food commodities and shares of agricultural stocks like Monsanto (MON, news, msgs). Normally, "people are always trying to make money with their investments." But now the focus should be on "trying not to lose money." Nenner recommends avoiding long-term bonds and is somewhat skeptical of gold.

One easy way to heed Nenner's advice is through the PowerShares DB Agriculture (DBA) exchange-traded fund, which invests in a number of agricultural commodity futures. The heaviest allocations are given to corn, soybeans, sugar, wheat and cattle. But things like cotton and coffee are included, too.

Continued: Running out of bulletsMore from MSN Money

Wait! Was that the recovery?

Will falling prices sink the economy?

Wall Street versus your 401k

For investors, the future is on hold

Is the market too mean for small investors?

 1 | 2 | next >

Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=7.106383; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=47;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board Most Recent Articles7 funds for 2010's second halfHow the downturn is remaking retirement Will falling prices sink the economy?Tough choice: BP or nuclear powerInvestments that crank out cashMSN Money InsightNew Investor CenterMarket DispatchesJubak's JournalTop Stocks blogCompany FocusContrarian ChroniclesSmart Spending blogFast AnswersDecision CentersMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingRecent Articles by Anthony MirhaydariWait! Was that the recovery? 07/07/2010Will falling prices sink the economy? 06/30/2010Wall Street versus your 401k 06/23/2010More . . .Fund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='7wq0sxsfmtwfjeha603agqhhvsphgtgg';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 4 of 4PreviousNextDavid Wehbe #1Wednesday, July 14, 2010 9:44:56 PMSomeone arrest this guy, before he causes market meltdown...ReplyReport Abuseskvam #2Wednesday, July 14, 2010 11:59:34 PMOne word:  Zoloft.  Nenner, take it.ReplyReport AbusebgDog #3Thursday, July 15, 2010 12:31:07 AM

Grass must have been legalized.

ReplyReport AbuseRaunchythePirate #4Thursday, July 15, 2010 12:39:46 AM

I hope we do get back to 1,000. The world should have already entered a depression, but nooooooooo, we had to stick our nose in it and bail out the banks etc.

 

Deleverage the whole system.

ReplyReport Abuse1 - 4 of 4PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/MutualFunds/could-the-dow-fall-to-1000.aspx?','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*

But I don't want to sound like a Pollyanna, and I want to address the fears many investors have. So today I trade my rose-colored glasses for some shades of gray.

Let's take a look at the dark side with two of the more pessimistic forecasters around -- apart from Prechter, anyway. One predicts stock market losses of up to 50% over the next two years; the other expects a long, grinding recessionary environment that could lead to a debt-deflation spiral and a deep depression. Thankfully, each provides ways that you can protect your wealth should his scenario come to pass. Cycles and fate Charles Nenner believes the stock market, like the economy and indeed the universe, is predetermined. In a phone conversation from Israel, Nenner outlined a rather bleak future: Stocks should rise to an important top sometime in September, before a two-year fall.

Nenner's work is based on cycles. His research focuses on uncovering and harnessing the overlapping patterns that are at work in the world. Technical analysis is already something of a dark art. Cycle work is on the fringes of what is already seen by many as a pseudoscience. But Nenner has demonstrated a downright-scary ability to glimpse into the future. And that's why hedge funds and other institutional traders pay top dollar for his insights.

On the surface, believing that markets operate on some unseen wavelength is at once ridiculous and curiously plausible. After all, our lives are controlled by cycles: the cycle of night and day, the workweek, the seasons, the human gestation period of 40 weeks, the tides and the weather.

Though it's not perfect, Nenner's track record suggests he could be on to something. Nenner caught a lot of people's attention when he warned of trouble in 2007 and recommended people stay out of stocks throughout 2008. In February 2009, he predicted a major rally would start "in a few weeks" and take the S&P 500 Index ($INX) up over 1,000. And in April 2009, he said gold would go on to a new high in a year. Both predictions came true.

In a May 31 note to clients, Nenner said that the stock market's rise in late May was a head fake and that another low was due around June 11. The actual date was June 8. His cycle work then showed a dramatic slide lower starting in late June and continuing into July. That's exactly what happened.

Next, Nenner expects an intermediate high for stocks later this month, followed by a late-August slide that retests recent lows and then a strong rebound into September. Though the short-term outlook doesn't seem so bad, Nenner's medium-term forecast is rather gloomy.

After the September bump, the cycles suggest stocks should fall into a major low due Christmas Eve. How major? Think of the November 2008 to March 2009 period. Something like that.

As for a specific price target, Nenner believes the Dow Jones Industrial Average ($INDU) should return to the 7,000 level sometime over the next two years -- which would be a return to the levels predicted if one were to draw a simple trend line based on the average performance of the stock market over the past 50 years. But given the stock market's propensity to overshoot or undershoot fair-value levels, Nenner emphasizes that a drop to as low as 5,000 for the Dow is very possible. (The Prechter prediction put the bottom from 1,000 to 3,000, five to seven years from now.)

The economic context for this outlook is, as you would expect, grim. In Nenner's words: "Expect a weak economy for the next 10 years. We could see big up moves in stocks, but the economy is going nowhere." Think unemployment and deflation -- a scenario I discussed in a recent column, "Will falling prices sink the economy?"Click graphic to see interactive chartMonsanto If the economy and stocks are going nowhere, Nenner recommends that investors focus on tangible assets such as farms, food commodities and shares of agricultural stocks like Monsanto (MON, news, msgs). Normally, "people are always trying to make money with their investments." But now the focus should be on "trying not to lose money." Nenner recommends avoiding long-term bonds and is somewhat skeptical of gold.

One easy way to heed Nenner's advice is through the PowerShares DB Agriculture (DBA) exchange-traded fund, which invests in a number of agricultural commodity futures. The heaviest allocations are given to corn, soybeans, sugar, wheat and cattle. But things like cotton and coffee are included, too.

Continued: Running out of bulletsMore from MSN Money

 1 | 2 | next >

Grass must have been legalized.

I hope we do get back to 1,000. The world should have already entered a depression, but nooooooooo, we had to stick our nose in it and bail out the banks etc.

 

Deleverage the whole system.

Read Full Article »