If This Is Real…

10,353 to 7532 for the Dow
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$DJIX |
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36% below all-time high.

1106 to 775 for the S&P 500
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50% below all-time high.

1759 to 1192 for the Nasdaq
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and 77% below all-time high.

1350 to 896 for the Nasdaq 100
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and a whopping 82% below all-time high.

These numbers speak for themselves and tell you what a vicious bear market this
has been. Simply put…one for the books and can easily be compared to the worst
on record.

Let’s first look at what happened last Wednesday.

On several occasions, I  have outlined for you what a “real” reversal day looked
like. The market has had many reversals recently but not one had all the
characteristics that need to be seen at decent lows. I doubted each and every
one. Once again, the big question comes up. Here are my thoughts.

This rally is another rally out of weakness…not out of strength. The oversold
condition, just based on price, could not continue. Like a correction/pullback
in a bull market…you are now seeing relief in a bear market.

Volume was huge. This is a very good sign. Reversals need volume to tell you
that there are buyers out there and not just a lack of sellers.

Price action was just fine. Not only did the market reverse an early plunge, but
the rally in points was huge and finished at the high of the day.

Sentiment was very negative at the lows.

The VIX
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since Sept. 11, put/calls were above 1.0, CEOs were being led away in handcuffs,
bears outnumbered bulls and more and more talk of investigations pervaded the
air.

Thus the oversold rally.

But that’s reporting the news. That’s the easy part. We all know a rally had to
happen at a given point in time. So…now what? Every one is now asking whether
this is the start of a new bull market, whether it is the start of something
intermediate or whether this plops out quickly.

Yes, we are still in a bear market, but it is very tough to tell whether this
latest rally can last longer than all the other futile rallies. I just believe
that we are in no-man’s land right now…a period that is tougher and tougher to
gauge. I have doubted every bounce, but this one does “feel” a little
different….maybe it feels like it has the makings of something that lasts more
than three days. But the market doesn’t care about my opinions. I do know a few
things though.

If this is real... if this is the start of
something big…if this is indeed the worst of it, you have plenty of time to
take action. Bottoming is a process and not a one-day event. In fact, odds favor
that after some more upside testing, a period of retesting will have to happen.
Bottoms happen over time and at or near the same prices.

If this is real… leadership will show up and the
NEW HIGH LIST will expand. In fact, I would just like to start a list of stocks
above their 50 day average. Right now, not many.

If this is real… the market will not hide from you…but you must
study. The popular media only started calling this a bear market a couple of
months ago. It will be six-12 months before they call the next “real” bull
market.

While there could be upside testing, the big problem is that the tape is still a
mess. Every sector is in a downtrend and most stocks look the same. A lot has to
happen to get this baby going again. The main point you need to know that just
because the markets rally another 5%-10 %, it doesn’t mean it is the end of the
bear. A chart of the major indices shows that would just be a retracement of the
latest carnage.