Believing In History
The following is nothing more
than a possible conclusion to the latest leg of the
bear market. As you know, I never predict…I never try to get in front of a
freight train…I don’t even know what I am having for dinner tomorrow. I do
believe in history. Some of these historical facts, as well as the recent
market action, are quite compelling. Let’s see
if they play out…and then, and
only then, will we react.
Part 1
What do the years
1957,1962,1966,1974,1977-78,1982,1987,1990 and 1998 have in common?
Time’s up. Every one of these years ended some sort of bear market
leg. I am concentrating not only on the year,
but on the way the market bottomed.
All of these years bottomed with “double bottoms.” Very simply, a
double bottom is the successful retest of a
low. It can come over weeks or over
months. Normally, the second low undercuts the prior low. This undercutting
causes massive panic selling leading to buyers finally gaining the
upper hand. The second low literally shakes out the last of the holders.
Part 2
What do the years 1957, 1962, 1966,1974,1977-78,1987,1990
and 1998 have in common? Time’s
up. Every one of these double bottoms had October in the equation.
Don’t ask me why October has bottomed legs of bear markets. I have
no clue. Maybe it’s because I was born in
October. Actually, I don’t care. I just
deal in facts.
Part 3
What do the years 1962,1966,1970,1974,1978,1982,1990,1994
and1998 have in common? These
were all mid-term election years. Once again, don’t ask me why. I
just deal in facts. We are now in a mid-term election year.
So…that takes us to today. July 24 was the first
low…and we are now approaching
the second low. We are just a few days from October. The White House
is threatening an attack on Iraq. Talk of terrorism pervades the air.
CEOs are being hauled off to jail. Major
companies are filing bankruptcies. At
this point, I will let your imagination run with this. Should be an
interesting October.
BUT…and this is a BIG but…I do believe that the only
way this supposed “double
bottom” occurs is with a giant “whoosh” to the downside. The
recent retest has been too
quiet. It has been too calm. It has been too complacent. Just
take a gander at the double bottom in ’98. The second low had a panic
selloff with a monstrous high-volume reversal
day. If this works, there may be one
more inning of pain to go.
Now let’s take it further. Even if this does occur, it is
not the start of a great bull
market. Longer-term, I believe we are now at the polar opposite of
the years 1982-2000. Those years were a big
bull market with mini bear markets.
I believe we are now in a big bear market that will have mini bulls.
You must go back to the 66-82 period. This
period followed a secular bull market
period from 1949-1966. Getting the hint? 17 up…16 flat…18 up…
Needless to say, I will continue to let the market be my
guide. But I believe my success
comes from not only what is happening today, but also of my studying
the past. Greed and fear are emotions that have been around since the
beginning of time. Greed and fear are emotions that will be around
forever. These cycles are all about greed and
fear. You need to use them to your
advantage.
Back to the present.
Near-term, I believe the market could have put in a low
that takes you up to the low
8000s. I don’t believe there is much more than that. There are still
too many negatives. Namely, after I went
through all of O’Neil’s printed product
index (2800 stocks), I found about 40 stocks that fit my criteria.
The rest of the move on Wednesday, once again,
was reserved for TECHS and BIOTECHS
that have failed after every rally of the past 30 months.
Other negatives:
Volume continues to be lackluster on any rally. In order
to have a more meaningful rally,
you must have strong volume.
I heard five pundits say today was the bottom. Of course,
those same five have been calling
the bottom since 2000.
NEW LOWS have expanded
markedly, while NEW HIGHS continue to be
non-existent.
There remains tons of resistance.
Just stay in gear with me. I have absolutely no ego when
it comes to the market. Just
like you can’t hide a bad market, when the market turns favorable,
it will show itself.
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