The slippery slope of the Bear market just hit a 90-degree
angle. After coasting at a 45-degree angle, that at times looked
like it would plateau, stocks are now moving decidedly down hill
and picking up speed. Each bump in the road this year has shaken
out passengers, but now those thrown from the market will face
even greater fiscal injury (not to mention mental, as they will
be taking lumps that at times will amount to 90% losses). Yet,
it will be difficult to hang on. That said, it might be
impossible to jump on. The real scary part is that we don’t have
a road map for this kind of ride. The last time there was a
two-year bear market was from January 1973 to December 1974. The
last time there was a three-year bear market was from September
1939 to April 1942. It is fair to say that 95% of us know
nothing of the two-year bear market, so this is un-chartered
territory. Adventure is fun when we get it via books and movies,
but stock market investors don’t have the fortitude and luck of
an Indiana Jones, they close their eyes when the danger comes
too close. However, now is the most important time ever to keep
one’s eyes open. It is also time to start looking deep in the
history books for answers. This isn’t the first time the stock
market has plunged, and it isn’t the first bubble that has had
to totally deflate.
According to published reports from Ned Davis research, the
average bear market lasts 418-days, and lops off 31% in stock
market value. This data is focused exclusively on the Dow Jones
industrial average. (I’m not sure how the NASDAQ figures into
historical data. One thing is for sure, that index which worked
so hard to shed its moniker as the "over the counter" market,
has been so fractured that it may never recapture former glory.
In fact, it seems like each session sees a former NASDAQ-listed
company ringing the bell at the NYSE. It will be very tough to
not only rebound, but to be the hottest index with many of their
brightest stars no longer listed.) Officially, the Dow’s bear
market began in January of 2000; so it is a long way passed the
typical time frame. That said, the index has been resilient, and
at times was only a bear market in name. Despite the length of
the current bear market, it hasn’t satisfied the historic norm
in terms of value yielded. As it stands now, the Dow is off 22%
from the all-time high. In many ways, the index has been a
victim of its own success. It is hard to sell off when there is
a migration from tech stocks into comfort stocks. As an avid
tape watcher, I could see over and over again that the index
wanted to pull back and investors wanted to take some profits
off the table. PG, MMM and JNJ were - and are - trading at the
high-end of their respective valuation ranges. Yet, before the
re-rotation could build a head of steam, there would be another
bomb dropped in tech/biotech land.
Now, it doesn’t seem to matter for those that have successfully
dodged the massacre by focusing on company’s they know and
understand. They are cashing in and putting the money on the
sidelines. Save for the residue from the Great Crash in 1929,
that saw the DJIA take 20-years to recover, the longest bear
market has lasted 2.5 years. That is good news, (I guess). The
stock market reclaimed 73% of its value within 9 months of the
Great Crash (okay, it wasn’t so great, but this is the "me"
generation and it thinks we do everything better than those that
came before us) of 1987. With this in mind, maybe the market
will move to a 180-degree angle and satisfy two elements of
history. Matching the timeframe of the longest bear market, and
at the same time yielding the average amount of ground that has
been typical. Maybe a quickening climax to what has been cruel
treatment could be the answer. But, hold on to your hat, it
means the Dow has to fall to 8177 before a floor can be put in.
The last three trading sessions of the week saw the Dow off an
average of 150-points, on Wednesday, Thursday and Friday. At
that rate, we could see the index bottom in 7-trading days. That
would mean the world’s largest equity market, and the pride (we
still love it deep down inside) of the nation could be ready to
rebound after the fourth of July.
About the author:
Since 1991, Charles Paynes’ Wall Street Strategies has
successfully provided timely and effective equity advice to
institutional money managers, retail brokers and individual
investors of all types, and has thousands of subscribers from
hundreds of brokerage firms. http://www.wstreet.com Wall Street
Strategies provides research online, including enhanced services
and communication tailored to today’s fast-moving markets.
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