October 6th, 2008

Final Leg Down Begins

Not much to say this morning other than that the next (and, hopefully, final) leg of the Bear Market began last Friday and apparently, based on the action overseas and the US market’s futures, will continue this morning.

I can’t help but think back to one of my first postings this year (February 15 entitled “10-20 Days to a stock market crash”) after coming back from a brief hiatus in which I wrote about the market’s action during the year’s first seven weeks:

“This bearish arrangement has occurred 51 times over the past 44 years and stayed under the spell of this configuration for 916 trading sessions or an average of 18 days. Most of those runs were during the secular bear market of the 1970’s and the tech crash of 2001-03.

One of the largest was during the crash of 1974 when the market declined 23% over 84 trading days! Another even more devastating period was the crash of 2002 when the market declined 11% over 34 trading days.

Unless there’s a significant recovery of 6% to 1450 during the next two weeks which doesn’t seem likely, history says we’ll be entering an new extended, step downward leg of this bear market.

If you haven’t already done so, head for shelter.”

The lone comment from a reader was “what evidence do you have of a crash-like event happening in this time period? You make quite a prediction here.” Although quite a bit early and 20% decline later, that prognostication looks pretty good today.

Unfortunately, I continue to see no break to the downward slide. That prognostication could be substantiate by a read if the dour fundamentals in the financial market (first in the US and now globally) but I’ll stick to a technical assessment and let the fundamental explanations follow. On July 7, I spelled out where I thought the bottom would be for each of the major indexes. At the time, when the S&P 500 was 1243 or 13% above Friday’s close, I saw the Index low at 1027. Unfortunately, I have had to since revise that further down to 920.

But I am starting to speculate about what might come then but I confess it’s a very cloudy picture. There’s no telling yet how look it will take for a base to form nor which industries or into which stocks you might safely put your money. My preference is to always aim to assemble a momentum-driven portfolio but it’s to early to anticipate into which companies and industries the herd will stampede with all the money they have stashed on the sidelines today.

Do any of you have any ideas or guesses?

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