Friday, January 25, 2008

Bear Markets

their gain or loss for 2008 so far (statistics are as of yesterday morning) --

Dow down 7.5%
S&P 500 down 8.4%.
S&P 400 down 10.32%
Russell 2000 down 9.48%
Wilshire 5000 down 9.09%

Crude oil (bbl) down 9.8.%
Ethanol (gal) down 5.5%.
Natural gas up 1.9%
Unleaded gas down 9.3%

Aluminum down 1.9%
Copper up 1.0%
Gold up 5.7%
Silver up 7.4%
Platinum up 1.9%

Cattle down 6.3%.
Corn up 2.9%
Wheat up 2.3%
Soy beans down 0.8%
Cotton down 1.5%.
Lumber down 6.4%
Coffee down 3.7%
Orange Juice down 6.9%

Frankfurt DAX down 20.18%
London FTSE down 13.13%
Hong Kong Hang Seng down 13.38%.
Paris CAC down 17.41%
Tokyo Nikkei down 16.29%
Seoul Composite down 14.16%
Singapore Straits down 14.2%
Sydney All Ordinary down 15.10%
Tapei Talex down 12.91%
Shanghai down 12.86%.

Let me put it this way -- Unless you've been in gold and silver, you've probably been losing money this year, at least so far.

What do I look for when I'm looking for a bear market bottom? The classic method of identifying the area of a bear market bottom has to do with VALUES. At great bottoms such as 1932, 1942, 1949, 1974 and 1980-82, stocks were selling at great values. By that I mean that blue chips were selling at price/earnings ratios in the 10 and below range. They were also offering fat dividends, many in the 6 to 8 percent range and even higher.

Those were big bear markets, and they ended with stocks selling "below known values." That type of vicious, even brutal bear market is rare, and they come along maybe once or twice in a generation. Whether we are operating in that type of extreme bear market, of course, I don't know. As I said, these bear markets are rare and they are associated with disastrous conditions. The odds are always against this type of severe bear market appearing..

All true bear markets end in downside exhaustion. The public is out, traders have disappeared, most professionals are beaten, the news is grim, and sentiment is black. One hears such expressions as "It's the end of capitalism as we know it," or "Wall Street will never recover from this one." The public is disgusted with investing. The newspapers are filled with horror stories about investors who have lost their money.

Often, but not always, amid such despair, the Dow or the Transports will sink to a new low. But the companion Average will not follow -- a dramatic non-confirmation takes place. This is what occurred at the 1974 bottom. The non-confirmation will mark the final bottom. And strangely, it's been my experience that at that time investors are so beat-down, so discouraged, that few even notice the dramatic non-confirmation in the Averages.

From: dowtheory


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