The economic slowdown and the recent passing of the 800 billion dollar stimulus package have had an interesting effect on the markets. A stagnation of resistance to lower and higher prices has occurred where the Dow as well as the bond and precious metals markets have all seemed to have reached both their comfortable upper and lower limits in the short term.

A curious hovering phenomenon has occurred where the stock market shows much resistance at the 7000 mark yet most investors are not confident enough to invest and inflate it beyond the mid 7000’s. The precious metals market has been suffering as well from much resistance. Gold hit its ceiling of $1000 per ounce but does not seem to really have enough downward momentum in recent weeks to drive it anywhere below the $850-$900 per ounce mark. Silver has suffered a similar fate, and both metals have ended this week in a cool off cycle.

These markets, while hovering in the interim, offer investors confident that the recent economic stimulus will have a positive effect, an excellent and rare opportunity to get in at the ground floor. The Dow closed lower last week than it had in the past 12 years. The potential for gains is enormous, as is the potential for another downward drift into the 6000’s range, assuming the stimulus package doesn’t do so well and investors lose even more confidence in the market.

Precious metals are another story. People turn to investing in gold and silver when they don’t have confidence in other markets, specifically the stock market. A bubble has begun to show its face in the precious metals market, and even with the recent cooling, this bubble has been inflated much since the lows in gold and silver that were seen in late November and early December. If I were going to invest in precious metals, I’d wait for them to cool off a bit more once the stock market begins to pick up and develop some upward momentum. Without knowing when the stagnation in the markets will end, it’s probably a good time to hold off jumping into the precious metals market, and just keep saving the money for when either stocks begin to take off or the precious metals markets readjust to their previous 2008 lows.

It’s been interesting following the markets in the first two months of 2009. We can learn from this analysis though that right now, whether for better or worse, the markets are going through a stagnation period in the middle of this giant economic transition and reorganization that the recession has catalyzed. For stocks, there’s been no better time to jump in since 1997, and for precious metals, the market and market confidence needs to crystallize one way or another before any real smart plays can happen. March should be an interesting month, and should serve in some way to predict the momentum of these markets in the short to mid term. The veteran investors seem a bit dazed, and reflect the common sentiment held by many Americans that now is the time to lay low and watch for other market indicators before stepping on the gas.