In
2008, the steepest part of the free fall lasted from 30 September to 10 October
(8-trading days) before there was any bounce at all. Volume accelerated throughout the decline. Our present crash started 26 July, 9-days ago
so we are due for a bounce. Tomorrow may
squeeze out the last of the sellers, however, Tuesdays are historically bad
(think black Tuesday in 1929). My theory
is that those who have thought about selling all weekend, and then hoped for a
rebound on Monday, but didn’t get one, are now ready to sell and will get out
no matter what on a Tuesday. We could
see a break lower at the open only to be followed by some upward movement later
in the session. That’s my guess, but it’s
not worth much and it isn’t based on any numerical analysis.
The
market apparently now believes that the scales have tipped in favor of
recession. As regular readers know, I
like to quote John Hussman, Phd, of Hussman Funds. Here are some excerpts from Monday’s Weekly
comment: “The economic evidence now suggests that the U.S. and the global
economy are again entering recession…. the composite
of economic and financial evidence we presently observe has always and only been associated with
ongoing or immediately impending recessions. This is not an opinion or a
viewpoint, but a fact of the data. "Always and only" is the Bayesian
equivalent of "certainty" (a Bayesian is someone who, vaguely
expecting a horse, and glimpsing the tail of a donkey, concludes he has
probably seen a mule)… The problem at present is that multiple lines of
evidence suggest more than just a "healthy correction" in the stock
market, or a "soft patch" in the economy. – excerpts
from the 8 Aug 2011 Weekly Market Comment by John Hussman, PhD. from http://www.hussman.net/wmc/wmc110808.htm
The
Table I posted past Thursday showed that the average Bear following a Bull run
in a Secular Bear Market is a 39% decline.
Based on past history, we might guess that the S&P 500 will likely
fall that far, especially given the fragile economy and jittery investors. That would take us back to the area of 830. (That is only a guess.)
While
we may see a bounce, and there are many who will start to buy now believing
this is just a “dip” that should be bought, I will not buy-the-dip. We know from history that Secular Bear
markets last for many years and
experience ups and downs. (The current secular bear started in 2000.) I expect the “down”
is just starting and will probably last for more than a year. The only buying I
plan would be for a short term trade.
I
didn’t need to run the numbers to know that the Navigate the Stock Market
analysis is still a SELL.
I sold last week on the 27 July sell signal to be defensively
positioned with only a small amount of my portfolio invested in stocks. (Zero
stocks in the 401k.)
