Tuesday, January 8, 2008

Bear Market Confirmation (Again)

Well, if November's market collapse wasn't enough to convince you, today's massive sell-off is unmistakable.

We are officially in a bear market. And we're either already in a recession or close to being in one. In any case, the Dow Jones dropping another 238.42 points (much of it in the last hour) and closing at 12,589.07, is proof positive that the grizzlies are in complete control and we are in phase two of a major trend bear market.

Here's why:
On August 16 the Dow closed at 12,845.78.
On November 26 the Dow closed at 12,743.44.
On January 8, 2008, the Dow closed at 12,589.07.

The fact that the Dow recovered to set an all-time high (14,164.53) between the August and November lows is immaterial, because, though the index rallied in December, the high was well below the October record and now the new low is well below the November bottom.

Dow 12,589.07 -238.42; NASDAQ 2,440.51 -58.95; S&P 500 1,390.19 -25.99; NYSE Composite 9,326.08 Down 136.16

So, you can slice it any way you like, but it certainly looks like the bear market began in August, confirmed itself in November and now has reconfirmed. We are six months in and the questions now become, how low will we go and when will it end?

Huge Profits in Options
Stocks go up and down. Make money in both directions with exclusive options advisor.
Bear markets generally last 18 to 30 months, and this one is likely to be a little on the deep side. Expect the Dow and other averages to shed 34-50% of their value. A 34% decline on the Dow puts the bottom at around 9,350. It's perfectly possible, especially considering that the Dow was the least affected of all the major indices during the last bear market, which ran from March 2000 until March 2003 (36 months).

The saving grace for this bear is that while it may be deep and steep, it may not last long, though much of that is sheer luck of timing. With the presidential and congressional elections 10 months off, Americans may finally get rid of the people who caused the imbalances in the economy in the first place (the Bush administration and a compliant Republican congress) and replace them with people who may restore some fiscal and monetary sanity.

By mid to late-2009, we may be bouncing off the bottom of the abyss.

Just in case you're keeping score (and who isn't?), the Dow has lost 962 points in just the last 8 sessions and is off just more than 5% for the year. Unless there's a technical rally, or the Fed decides on emergency rate cuts soon, or corporate earnings come in better than expected, the January barometer is going to forecast 2008 as an ugly year, profit-wise.

The internals were expectedly sad. While declining issues pounded advancers, 4279-2074, the ratio was only a little more than 2-1. New lows continued to expand the disparity over new highs, 961-124. The advance-decline line was not more pronounced due to the nature of the news driving stocks down, as it was focused on the financials once again.

Bloomberg reported that Countrywide Financial (CFC), poster child for the sub-prime meltdown, was about to file bankruptcy, though the rumor was once again dispelled by the company. Still, investors took the battered mortgage bank to task, dropping it by more than 2 points to a multi-year low of 5.57.

Moody's downgraded a bunch of Bear Stearn's (BSC) CDOs and Morgan Stanley slashed its bond insurers profit outlook. MBIA (MBI) dropped 22% and Ambac (ABK) lost 17%. This was just more of financial sector eating its own, a recurring and troubling pattern.

In response to the wicked selling on Wall Street, commodities took up the slack. Oil rose $1.24 to $96.33 a barrel. Gold closed at a record, up a whopping $18.30 to $880.30. Silver also priced higher, up 53 cents to $15.83.

Amid all the pain of the last six months, a caveat and some silver lining: We are only in the beginning of this downturn and may just be entering a recession now; the good news is that fortunes will be lost while others will be made. There are certain to be incredible opportunities in both beaten down and unnecessarily-punished stocks.

NYSE Volume 4,638,535,000
NASDAQ Volume 2,563,689,500

No comments: