2/27/07--Beginning of a Bear Market?

[Jim Nickerson]

From Alan Abelson, Barron's 03/03/07

The almost universal conviction is that Tuesday's plunge was not the start of a full-fledged bear market. Even the savviest sage we know, who has been unequivocally skeptical for a spell now, thinks the odds are against it being the start of a bear market. He reckons there's one more big move up likely and, after that, perhaps a few month hence, stock prices will begin their journey to the nether depths.

Perhaps. But we wonder. That virtually everyone agrees that Tuesday wasn't the start of a bear market strikes us as more than reason enough to suspect it just might be.

The S&P 500 hit 1461.57 on 2/22/07 and then there was 2/27/07 which was a day of "panic selling."

Is the top for this cycle in or does what we have now represent a buying opportunity for more gains to come?

What do you think?

[Jim Nickerson]

Re: 2/27/07--Beginning of a Bear Market?

Mike Burk http://www.safehaven.com/article-7050.htm just posted an analysis concerning Nasdaq advancing volume / declining volume.

Last Tuesday the down volume was 24 times the advancing volume.

Since 1978, the extent of his data, Tuesday's decline ranked 8th.

The top 10 are:
Date Ratio
10/19/1987* 42
10/27/1997 40
10/9/1979* 38
1/28/2004 36
3/27/1980 35
10/10/1979* 31
4/14/2000 25
2/27/2007* 24
3/17/1980 22
12/8/1980 21

Four of the 10 occurred during the 3rd year of the Presidential cycle (marked with an asterisk), other than last Tuesday, they all occurred in October. A common characteristic is they occurred near, but not at, short term lows. The charts below show a few of them.

My impression is that his comments suggest the market will go up from here.

I don't know much about cycles, but out there on the web there are arguments that the 4-yr cycle low, rather than occurring in the fall of the 2-nd presidental year, occurred last summer vs. those (few) who think the the low due last fall has been delayed.

[Finster]

Re: 2/27/07--Beginning of a Bear Market?

From Alan Abelson, Barron's 03/03/07



The S&P 500 hit 1461.57 on 2/22/07 and then there was 2/27/07 which was a day of "panic selling."

Is the top for this cycle in or does what we have now represent a buying opportunity for more gains to come?

What do you think?

As you may have already gathered from my comments elsewhere in this forum, I think the odds are quite high that it is the beginning of a new bear market. Aside from the tangible reasons I've already cited elsewhere, there just seemed to be a palpable change in the whole financial structure. Very much unlike the correction we experienced last May-July. One never knows - it's conceivable we could be looking back on this in a few months as nothing more than a hiccup - but IMO it's not worth betting on it.

This calls to mind the earlier thread In the Shadow of 1937, where EJ compared the current landscape with that of 1937. I think the comparison is compelling. That was about when the principal aftershock to the infamous 1929-1932 debacle occured. If history rhymes, it would be just about right for us to get the same for the 2000-2002 bear.

[bart]

Re: 2/27/07--Beginning of a Bear Market?

This calls to mind the earlier thread In the Shadow of 1937, where EJ compared the current landscape with that of 1937. I think the comparison is compelling. That was about when the principal aftershock to the infamous 1929-1932 debacle occured. If history rhymes, it would be just about right for us to get the same for the 2000-2002 bear.

Too many charts, not enough time... I've had this one in my web archives since 2005 I think, and just updated it.
I know I posted it on DR and SI but don't recall if I ever linked it here.

[WDCRob]

Re: 2/27/07--Beginning of a Bear Market?

Would be very interesting to put the 1966 peak on there too.

[jk]

Re: 2/27/07--Beginning of a Bear Market?

Would be very interesting to put the 1966 peak on there too.

and then to correct for cpi+lies

[bart]

Re: 2/27/07--Beginning of a Bear Market?

Would be very interesting to put the 1966 peak on there too.

It doesn't track very well. The 1966 peak around 950 was also hit in 1968 & 1971 and then exceeded in 1972 & 1973 when the Dow broke 1000.

[bart]

Re: 2/27/07--Beginning of a Bear Market?

and then to correct for cpi+lies

Well... ok... if you insist... ;)
This is the closest I have and putting one together for 1929, 1966 and 2000 is quite non trivial.

[jk]

Re: 2/27/07--Beginning of a Bear Market?

thanks, bart. i knew you couldn't resist.;)

[Finster]

Re: 2/27/07--Beginning of a Bear Market?

Too many charts, not enough time... I've had this one in my web archives since 2005 I think, and just updated it.
I know I posted it on DR and SI but don't recall if I ever linked it here.

Ha! You've captured it perfectly. If the parallel persists, the only major difference would be that the generally upward relative bias we've seen thus far continues. Not because the stock market has a real upward bias, but because of the persistent inflationary downtrend in the currency unit we're now using to measure the value of stocks. That is, in terms of gold, the pattern ought be very similar, but this time, due to the general depreciation of the currency unit in terms of gold, we see a nominally more rising overall bias.

[bart]

Re: 2/27/07--Beginning of a Bear Market?

Ha! You've captured it perfectly. If the parallel persists, the only major difference would be that the generally upward relative bias we've seen thus far continues. Not because the stock market has a real upward bias, but because of the persistent inflationary downtrend in the currency unit we're now using to measure the value of stocks. That is, in terms of gold, the pattern ought be very similar, but this time, due to the general depreciation of the currency unit in terms of gold, we see a nominally more rising overall bias.

Good point on inflation. The CPI adjusted Dow low in 2002 was about 7100 and adjusted with shadowstats data about 6500 (with a starting point matching on March 2000)... and I'm sure I could fiddle the scales to make the lows match too. ;)

[jk]

Re: 2/27/07--Beginning of a Bear Market?

i think if you use the naz it lines up even better.

[bart]

Re: 2/27/07--Beginning of a Bear Market?

i think if you use the naz it lines up even better.

It would I'm sure, and also get closer if I did use CPI or CPI+lies data, and that chart is also one that's very sensitive to the starting date and the scale... as shown by this small change.

[Finster]

Re: 2/27/07--Beginning of a Bear Market?

i think if you use the naz it lines up even better.

Good point, JK. What we now call "technology" companies are the analog of what used to be called "industrials". The Dow Jones Industrials of yore was in significant part a tech index.

[Finster]

Re: 2/27/07--Beginning of a Bear Market?

Good point on inflation. The CPI adjusted Dow low in 2002 was about 7100 and adjusted with shadowstats data about 6500 (with a starting point matching on March 2000)... and I'm sure I could fiddle the scales to make the lows match too. ;)

Of course your point is valid regardless ... even without the scale adjustments the general form of the plots is similar. The peaks and valleys correspond pretty well.

But it wouldn't really take any fiddling to get them to match up much more closely. Just plot the stock prices in terms of gold rather than dollars. The resemblance will be striking enough to make your chart heart skip a beat.