Posted on 06/27/2008 5:06:05 PM PDT by shrinkermd
Eight months after they peaked, stocks dropped to the threshold of a bear market, another signal of the mounting challenges that lie ahead for the economy, government and investors.
Friday's 106.91-point drop left the Dow Jones Industrial Average at 11346.51, down 19.9% from its October record, after it had fallen as low as 11297.99 during the day. At the day's low the Dow was down 20.2% from October. Investors typically consider a decline of 20% or more the mark of a bear market.
...Historically, the stock market bottoms before economic activity bottoms," says Paul Kasriel, an economist at Northern Trust bank. "This is not exactly a good omen, because the stock market doesn't appear to be bottoming."
Stocks and the economy are bound together in important ways. The stock market provides a signal of the outlook for earnings. Companies also turn to the stock market to raise money -- something many banks need dearly in the face of steep losses on loans. Falling stocks make it harder to raise capital.
...With one trading day left in the month, the Dow is now down 10.2% in June, the worst performance for the month of June since 1930
(Excerpt) Read more at online.wsj.com ...
Kind of bizarre to say we “are in” a bear market AFTER it has dropped 20%. There are not enough observations to make a statistically significant statement, but what we have says BUY BUY BUY.
The dems are selling,time to buy.
Stocks are on sale! Time to buy, buy, buy!
I’m sure this has nothing to do with any of the smart money fleeing declining equities for skyrocketing oil and corn futures.
“There are some things that are up that don’t make sense. For example, the DJ Transport index is up YTD in spite of the being hostage to petroleum costs.”
I’ve said several times here that you could gather a bunch of 35+ year market veterans and ask that question/pose that quandary and I think you’d stump them all, to a man. (or woman) Absolutely incomprehensible.
What historically happens after a statistical bear comes out of hibernation?
yitbos
At Monday morning's open, I'll b buying handbaskets...
“What historically happens after a statistical bear comes out of hibernation?”
I am not sure what you’re getting at by asking that question. Plus, I don’t know what you mean by a “statistical” bear market. If we go by the 70’s, the market could lose half its peak value. All the major averages other than the NDX have penetrated their 50-WEEK (not day) day MAs; massive technical damage was done this week.
If it’s the end of Q2, there should be tape painting going on, and that isn’t buoying the market much, to my eye. Longer term, the market has been in an almost unrelenting bull since mid-2002. It could give back a lot.
Personally, I do not think the issues in the economy are going to turn around like flipping a semi stock. This oil thing is pretty relentless. It’s not clear how earnings in general will be impacted, and Wall St has undoubtedly played the “lower the bar until a cockroach can crawl over it” game. But I am not bullish here, plus there is utterly no fear in the markt judging by the VIX, which is still in the lowish 20’s. Even the other DJ-358 day, there was no massive puking of stocks. Since we haven’t got much capitulation to speak of, I don’t think any kind of meaningful bottom is in, not even close. All my indicators say “don’t be in this” (referring to a longer term, “long-only” type investor)
Thing is, this doesn’t seem like an ordinary “bearish” market to me. We have GM trading at 50 year lows, we have GE trading at less than half of where it was in 2000, the banks are below their MLK-day panic lows...and if you told me all this and asked me where I thot the DJ should be trading I think I would say sub-10K. And I think that’s where we go, my target is circa 1100 on the SPX, about equal to DJ 9500.
Are you sure it’s the Dems who are selling? Maybe it’s Republicans who foresee an Obama administration and what his policies likely will do to the market (all markets), getting out while the getting is good. My liberal friends may take falling stock prices to be a negative comment on what Bush has done. I take the market to be discounting a future under Obama’s leadership. But maybe the change is really caused by other factors than US politics.
Catch a falling knife, with your 3 last fingers.
Believe me,the dems are selling.
Also the trucking companies that will survive, will be much stronger as midsize private players like JEVIC etc. go under - the freight rates will rise.
Wow. You seem to know a lot about this.
Any suggestions? I’m not too smart about investing so I need some advice on what to do (grin)
The DJIA has had significant losses due to the financial stocks therein, especially Citi, American Express, GE (significant finance exposure) and GM (again, exposure to finance).
At the same time, the heavy weighting of rails in the Tranny Index and the strong demand for coal and commodities has propped up the Transports. If you look at the results of FedEx and UPS, which are part of the index, you see that the consumer side of the economy *is* showing up in the transports.
As far as I can see, there’s only downside from here. The good news is faint, the bad news (especially the rocketing price of oil/fuel) just keeps getting worse, and the credit blow-ups aren’t remotely close to done.
I am a trader but I can also put on a LT don’t-want-to-watch-every-day “long-only” investor’s hat. There is a very, very simple signal, of very long term validity, proven through many decades of market activity, known as the 20/50 moving average. It is foolhardy to ignore it, because it is so effective.
In this post, I linked a video detailing how the signal works, how you use the signal. It’s explained very clearly. You don’t have to look at it any more frequently than weekly and it is not useful to do so.
http://www.freerepublic.com/focus/chat/2037220/posts?page=33#33
Also in that post is a place you can go to see where the signal sits today. As of mid-late January, it has decisively generated a “don’t be in this” signal....that is, if you’re a “long-only” investor....meaning, you don’t short stocks, you don’t hedge, you don’t play options, and you don’t want to or aren’t yet confident enough to pick individual stocks. On the chart site, stockcharts. com, enter “SPY” as your stock symbol, which is effectively the S&P 500, the benchmark against which all mutual funds’ performances are gauged.
You are looking at the crossover and crossunder of two moving averages with this signal. When the “faster” eg; shorter duration MA crosses over the longer-term MA, you do not want to be in the market. It’s that simple. We are in such a condition. It is NOWHERE near over for US markets.
One thing to realize, is that we are seeing long time veterans of the market getting absolutely bludgeoned here, and I mean smoked. Bill Miller of Legg Mason is down 45% YTD. The most advanced, slickest broker/bankers are down between 40 and 60%. Thinking you can outwit these guys is a tad on the naive side.
This is a very, very dangerous environment here, because so much is in flux. We do not know how much a dollar is worth. We do not know how much oil or corn it will buy. We do not know if high oil will persist, but IF IT DOES, there is no way the economy can handle it over an extended period. There is at least some likelihood of an Obama presidency and Dem congress, which is a guarantee of much higher taxes, continued resistance to oil drilling, a general assault against big drug stocks via socialized medecine programs, and most importantly, a possible sunset of currentax treatment of cap gains and dividends which are among the most favorable in history. At some point, you have to weigh the upside catalysts against the downside catalysts and see.......whatever you yourself see. IMO you’re every bit as likely to outperform virtually any stockpicking with a dumb CD, or, better, a general obligation bond fund sited in your home state which could be double tax free. Yes, CDs, even paying as crappy as they do.
Personally, I don’t think there are many sectors of the economy that are making money here, and even more importantly, I don’t think there are many sectors EXCEPT for the banks and arilines where the stock prices reflect the collapse in earnings power these companies are likley to go thru. The ONLY sectors I believe are capable of making money here are coal and fertilizer and steel. Some gold. But that’s just my opinion. IMO this is by far the most dangerous investing environment in 5+ years and the upside doesn’t come close to outweighing the risks.
How is that bizarre when a loss of >= 20% is the traditional/conventional definition of a bear market? When else would you say it?
bump
Because “has dropped 20%” is a statement of the past. “Are” in a bear market is a statement about the present. It implies that the future is predictable.
And all the mutual funds that own those shares.
yitbos
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