Every once in a while I think it's good to look back at a time when we faced a difficult market and reflect on those moments. Below is are two excerpts from old posts I keep around to remind me of those difficult months:
September 29, 2008
A further decline to 1161 followed, and then a bounce to 1172 by 1:30 as the House was voting upon the "bailout plan". When the bill failed to get the required votes the market plummeted. Nearing 2:00 the SPX made a new low for the downtrend at 1126. The potential Primary wave B rally had failed, along with the "bailout plan". The SPX then bounced to 1150, and just past 2:00 rejection of the bill was announced. The bill was rejected 228-205, as more than two-thirds of Republicans and 40 percent of Democrats opposed the bill. "We’re all worried about losing our jobs," Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. "Most of us say, ‘I want this thing to pass, but I want you to vote for it – not me.’" Politics before country ruled the day!
March 6, 2009
The US unemployment rate hit 8.1% last month, its highest level since the early 1980’s. Most economic reports also displayed a continuing contraction in activity. The equity markets responded with their worse week since November. The DOW dropped under 7,000 (now at 1997 levels) and the SPX under 700 (at 1996 levels). For the week the SPX/DOW were -6.6%, and the NDX/NAZ were -5.4%. Asian markets were down 5%-7%, but China rose 5.3%. Europe lost 6.2%, and the Commodity equity markets were -4.8%. Bonds were +1.4%, Crude gained 1.7%, and both Gold and the Euro were flat.
By the end of this week the bear market will be entering its 18th month, and the loses are mounting. The SPX is down 58% from its October 2007 high, the NAZ down 56%, and the DOW/NDX have lost 54% of their value. Since 1932 there have been only two other times that the DOW had lost more than 40% during a bear market. The 1973-1974 Cyclical bear market (47%), and the 1937-1942 Cyclical bear market (53%). The current loss in the DOW has now exceeded both, suggesting that we are in a Super cyclical bear market. The last Super cycle bear market occurred between 1929-1932, and the DOW lost 89% of its value during that 34 month period. The rule of alternation, however, suggests that this Super cycle bear market should alternate in wave structure with its predecessor. Since the 1929-1932 bear market was a large zigzag, this bear market should take the form of a flat, triangle or complex structure. The most common alternating wave structure is a flat. This suggests after the initial low is established, a strong rally should follow, and then a retest of that low should end the bear market. This remains the preferred scenario. In regard to time, this bear market could end as early as 2010, or as late as 2012.
Here is a picture of how bears markets are similar in many ways (I think this is 1996 and 2009):
View attachment 37112
Those were some difficult days and based on the fact that so many of us are still very bullish, it's going to be a while before we move through this bear. My thinking is that the high for last May was 2135 and the bear really started then. We're almost a year later and things are pulling back in a steady almost methodical way. However we are coming close to a point where there is going to be a major slide downward.
The good news is that past experience and technology are real tools when we go through these downturns, and getting "burned" is something that teaches us lessons we generally remember when similar situations show themselves. My expectations are that there may be a small bounce next week but it will be limited to about 1917 tops, and probably choppy. This should all conclude next week followed by market heading down (possibly as low as 1640 but probably in the mid 1700's) before we have another move big bounce. After that bounce I expect that we will enter the bear market in earnest.
Be safe out there!!!
FS
All the best in your investing.
