November 20th, 2008
True confessions: it looks like I let my natural optimism overwhelm my reluctant skepticism. I was believed and was relatively convinced that we had hit a bottom last week but today’s action undermined even my confidence.
The only obstacle holding back further declines is a support trendline emanating out of the absolute Tech Bubble Crash low of 775.80 on October 9, 2002 or intra-day low the following day of 768.63. Is there anyone out there who could have ever imagined this past October, 2007 when the Index closed at 1562.47 where we’d be today. That’s a full 50% haircut in average stock prices.
I agree with those who say the current economic malaise is much worse than the Tech Bubble Crash, worse than the mid-’70’s Oil Embargo, perhaps even working its way down to the depths of the Great Depression. If true, then this market has a long way to go on the downside. The Great Depression Crash cut the market (then measured by the Dow Jones Industrial Average) by nearly 90% from a peak of around 390 to a crash low below 50 (click here for Chart 1). It made the descent in 7 strides stretched over three years (click here for Chart 2).
With trepidation in using The Great Depression as a yardstick for measuring this evolving recession/depression and the 1930’s crash as a model for the current market, one can conjecture that the eventual bottom is out there somewhere towards the end of 2009 at a level that erases most of the 1990’s Bull Market (in the 400-500 area). Impossible? Well, did you ever think we’d see 800 again after hitting 1500?
Please tell me this fear of another 50% decline from here is out of the realm of possibilities. But in response as an unrepentant chartist, let me offer that the two peaks (2000 and 2007) could be viewed as a the two heads of a huge, extended double-top formation:
I remember reading about “secular bear markets” and thinking it could never be and then having to embrace the fact of actually being in a secular bear market. And now I have to at least contemplate what I hope is the remote possibility of a double-top ending to the 1990’s Tech Bubble as manifested in the bankruptcies of the tech, housing, financial and, now, auto industries. Unbelievable!
I’m not saying a bounce isn’t possible here but it’s only prudent going back to the drawing board and coming up with a new strategy.