Business Outlook for 2008

The first half of 2008 has definitely brought a malady of concerns blowing away most equity markets into down trends as they digested the financial problems in the US economy, higher fuel prices and inflation. I think that a recovery from this ordeal would take a little time as it looks to be completing only the 3rd wave of a bearish drive in Elliot’s 5-wave bear principle.

Saying this, I would also build in a possible medium sized recovery played out by an expected wave 4 rally in an effort to ease up current oversold conditions.

World indices bear down and may take time to recoup
US stock trends have officially reached bearish territories after losing more than 20% of its value. This draws out heavier supply problems for the world’s largest market- this triggering a global sympathy that has yet to see its potential flows. This bearish flow will likely precipitate until a gradual U-type reversal is shown or until a fear-based selling capitulation materializes (usually seen in wave 5) to rub out overhanging supply. In between this a major rally is still seen on the backdrop of oversold levels.

Oil prices still riding high but showing overbought warnings.
One of the world’s pestilent problems is the striking price of Oil which has accelerated its trending advance this year and has not yet let up. In fact it has been climbing at about $13/ barrel per month since March and unless major correction comes to disrupt this course, Oil can find itself at $150 in July and closer to $200 before the end of the year. However, heavy overbought levels will likely call upon a major correction that may come to test its trendline lows current at $135- a break of this would signal a medium term corrective phase.

Inflation triggers upward adjustments in I-rates seen in the medium term
The rise in the prices of Oil and consequently materials and commodities has driven global inflation upwards, particularly with more pressure in developing economies. US Bond yields, which serve as a good leading indicator to interest rates, have turned up in April breaking a 9-month down trend and offering a medium scale rally. This I feel could be limited in threat and scope focused only into the medium term since the long term trend angle of yields (since the 90s) continue to point down. I would say however that a flattening in the large trend angle may be possible as it has reached its 5-year low cycle.