Friday, October 10, 2008

Never a dull market

Makes one long for the early summer doldrums. No doubt cyclical bear markets within secular bear markets fall hard and fast - but the lack of respite has been something of a surprise, particularly in the Russell 2000 which had (initially) weathered the Financial meltdown relatively well. I have altered Fib retracements to account for the new low. I like July lows as the upper range of any bounce, but given Thursday's weak close I suspect there will new low made today which will mean new Fib values.


The only real area of support to look for now is the 2002/2003 congestion, where the S&P trades now. The degree of loss on the monthly chart is incredible and were not even half-way through the month.


The S&P shed 34% during October 1987, this year it has 'only' lost 22%; a comparable loss would take it to 770 - but in 1987 the S&P had collapsed from its highs, in the current market the S&P was already down 26% before it went on its October bender. In total the S&P has lost 42% from highs to lows.

Based on the Wiki entry for the Crash of 1929 in September the Dow lost 17%. This was followed by a 13% loss on "Black Monday" of Oct 28th 1929 and 12% on "Black Tuesday" Oct 29th 1929 (net 23%). A bottom on Nov 13th 1929 was down 48% from September highs. But the real kicker was what followed from the relief bounce when the market shed 86% from its April 1930 high to the July 1932 low. In all the market lost 89% in 3 1/2 years (cyclical bear market within a secular bear market).

A similiar play would take the current cyclical bear market into early 2010, but even by 1929 standards the first down leg should be almost complete. One key difference (from a price perspective) is we have already washed out once to the tune of 50% from 2000 to 2003 as part of the current secular bear market. Nothing to say we can't do it again (and then some), but at least there is one major support level to lean on - 2002/03 lows.

As a sidenote, I wonder what the "soft landing" 'folks' are saying now: "The Obama-ACORN-Financial Crisis Connection" from Hughie Hewitt and the News (sigh!), Kudlow has gone quiet on Goldilocks but has at least a sensible piece on the need for candidates to address the concerns of investors.

On the Zignals blog I have a related article to this.



Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website
 
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