BEAR Market????

[lmrhoades]

Henry and others...

I'm confuses on all the retiric out there...so many are saying this is just a temporary rally with a BEAR MARKET. How can we know if these "snap back" rallies should be sold and then shorted?
Now the test comes in when we rally back after being oversold, when the first down day comes we start to see panic profit takers.
ANY thoughts please would be helpful.
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LMR

[rffrydr]

In "The Age of Turbulence" that guy we all used to love and now love to hate said that long practice had taught him that the most distinguishing thing about the American economy was its resiliency. The corrollary might be our ability to re-invent ourselves. And so we look back at our "echo Bull."

Let me add to your confusion IMR: it could be said that we've never left our bear market; that what you've come to know and love this past five years has been precisely that bear market rally you're worried about. One trade every three to five years isn't much for action--but why should that be an objection?

Yes I exaggerate to make a point. There's no doubt the american corporate world is "leaner and meaner," that the world has grown and market economies thrived (if not market principles) and that end-of-the-millenia Tech has shown the way. But here we are: Microsoft trades towards its lowest mulitple ever and pan-quotidian WalMart has barely budged in 8years. We still can't watch tv on our cellphones and have seen nary a new drug for any serious disease in all that time.

You could say that using "exuberence" as your measure nothing compares to pre-2001. Real Estate is precisely the rejection of paper as a store of value. The "stock" market. Indeed the very heart of our bull was built of fear--that most perverse marriage of greed and yield rising to the point of its own self-mockery. (see "Greed born of Fear" below). The AAII topped out in 2004, the rest has been defense--or RMBS distraction. Perhaps that was our bull market? For WallSt. tech is the future, tech is promise, tech drives cultural change and they'll find this formula in history. Tops are built of long time horizons and promise. There is no promise like the future; and that is where we must measure.

Well what drives the imagination of the market today? The rent of one strip mall levered to the return of a hundred?

The question here is complicated by the fact that the markets are now showing bull now that we've just listed off into technical definitions of bear--20percent downs in various indicies for instance. But what you've got to concentrate on is what story does this rally represent?

Are we putting floors on our homes? Will that get us to the necessarily overvalued conditions of a future high to be? Or does the final uniting of East and West in trade, the drive for which spun off our country as an accident (and drove the expansion of the same once the US was established) offer the promise a silicon chip could never achieve? (This is ironic since it is the very same that killed the later--too much trade). Or do Google and Apple and Game consoles offer enough in the way of reinvented media to deliver new highs. Media has always been a key driver since its leverage is so great ("selling shadows on the wall" as the Sony execs said when buying out Columbia Pictures). Those are pretty good margins. And it's often the real story behind tech--the printing press, the radio, the movie, the television.

Where and what is this market we try to append bull and bear to? 40% SP earnings from abroad. FTSE hardly represents the british economy. Is the Saudi Market a bear? Maybe that 's the story: the world has become too small a place. How do we power such a world?

Find your story, Imr and then check your numbers. Behind every quality there may be a quantity--but behind every quantity there is at base, a quality.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Bill, I agree with your comments re: the asset class. As you all know, I have been bullish on selected consumer discretionary and financial stocks since last week.

TRS: If you look at bank reserves/St. Louis Adjusted Monetary Base, the Fed had not been increasing liquidity at all. They've handed out money to those who presented MBS's and the like at the discount window and then they've been selling Treasuries on the other side.

Now, they're showing more resolve and that is a good sign, especially since we've had more of a panic sell-off over the last couple of weeks. The fiscal stimulus would also help. As rffrydr pointed out, the Treasury learned their lesson during 2001-2002 and will be much more effective in mailing out rebate checks this time around.

I covered why I believe this will be different than the 2000 to 2002 bear market in my latest commentary:

http://www.marketthoughts.com/members/z20080120.html

Comparing this current crisis/credit crunch to the overcapacity/debt build-ups in the tech sector during the late 1990s is too simplified - they're different animals altogether - not only because the macro conditions are different now but because of the Fed's potential impacts on the tech vs. the financial sector. Look at China: Their banking system was in shambles a few years ago - much worse than Japan - and look what a few liquidity injections did to those banks and the Chinese financial sector. The Bank of Japan and the Japanese government never had such resolve - and that cost them - quite a bit, in fact.

Compared to the ECB, BOE, and the BOJ, the Federal Reserve is a much more efficient and credible institution.

Henry

[nodoodahs]

Ditto with mine, unbiased by my present position, that is.

I choose to use an objective definition that anyone can verify, a moving average crossover that has, over the last 40+ years, done a very good job of separating good from bad periods to be in the S&P 500, as my "bull/bear differentiator."

I have an *opinion* about intermediate market movement based on other technicals that aren't as easily codified into a system.

I also have other methods that I trade.

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The problem with most discussion of bull or bear is that they don't define what they mean.



Bull or bear ... in WHAT? Define the asset class.

A good definition should be "in the now" i.e. able to be defined at this instant with data available to anyone, and one should be able to define the start and end of a market period AS IT OCCURS with this "in the now" process.

That definition should delineate periods of good and bad average daily returns with statistical accuracy.

That definition should rigorous and transparent, not "TA" but "this indicator that and that indicator this, by this definition, is bull (bear)."

If you can't do that, in my opinion, you aren't discussing what a "bull" or "bear" is.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[TRS]

I neither bullish or bearish: My reply was to the question from Imrhoades

"I'm confuses on all the retiric out there...so many are saying this is just a temporary rally with a BEAR MARKET. How can we know if these "snap back" rallies should be sold and then shorted?"

So I chose to answer the question unbiased with my present position by using TA and the chart to present the case that this could be a temporary rally within a bear market and that I believed we were in a bear market right now. Based on pure TA the rally's should be sold. Using TA keeps my emotions out of the picture regardless of my position, and I don't feel that I have to defend my postion with TA. Trying to guess what the incompetent FED is going to do next or using analyst's market PE estimates to gauge whether the market is cheap has never helped me in the past, understanding the simple trend of the market has saved me to many times to remember.
Henry the fed has already been flooding the system and since then the TA of the market has deterorated further. The fed won't save the direction of the market any better then they did in the post 2000 bear market. A panic fed will only make the bear worse.
If we have a change of trend I will catch it through TA, but I am certainly not going to time the bottom or plunge in based on what the fed may of may not do.

[nodoodahs]

From the EZ Trend perspective, it entered a "bear" not long ago. 100/180 ema cross, first in many years. That's why my Timing model is only 25% long stocks at the moment.

My *opinion* is we've bottomed, and the worst we'll get for the next several weeks or months is sideways, the best we'll get will be a resumption of uptrend in that timeframe.

Should be fun to find out! I haven't changed positions for a couple of weeks and won't for a couple more, just riding ...
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

TRS,

Dow Theory is more than looking at "confirmations" of the Dow Industrials vs. the Dow Transports, and vice-versa. In fact, the technical aspects of the Dow Theory is merely a secondary indicator.

Dow Theory - first, deals with valuations, and second, the concept of the "primary trend" and the "three phases" in both a bull and a bear market:

http://www.marketthoughts.com/dow_theory.html

In the current market, valuations have never gotten to a very high level at the top in early October. rffrydr pointed out that it did not matter, given the dominance of the energy and materials sectors. True - but on a stock-to-bond basis, we still never got the overvalued readings I wanted. I don't need them to be at 1999 levels, but the readings have been consistently below those readings we saw during both the 1980s and 1990s. Secondly, for all intent and purposes, we never saw a speculative "third phase" in the current bull market. Retail investors have been withdrawing from the domestic equity market in droves starting in 2006, and have been dumping their funds into either bonds or international stocks. Even the domestic mutual funds have been shy - they have overweighted cash and even bought foreign stocks in order to goose up their returns.

For me, I use trendlines and MA crossovers as confirmations of my opinion - which is backed up by fundamentals, my outlook on monetary policy and fiscal policy. Both Congress and the Fed are going to flood the streets with money over the next few months - and both US and global investors are still hugely underweight US equities - everyone has their own system but I am not going to bet my portfolio on trendlines or MA crossovers, if my other indicators (don't forget sentiment) and outlook don't confirm.

I wouldn't argue with you if we're talking about China and most foreign stock markets, but in terms of the US, I can't conclude this is a bear market, just yet.

Best of luck,

Henry

[TRS]

Always interesting what constitutes a bear market. By pure TA and mostly my definition we are in a bear market. All those dates Aug 2004, May 2005, Oct 2005, August 06, April 07 were corrections in a uptrending market and never took out the intermediate term prior low. The trend never changed. The trend has changed in todays market the intermediate term low has been taken out. On an uptrend during those above dates buying the dips at support payed off handsomely. Now the reverse sell the bounces or (short) after the bounce is the way to trade a bear market if your a trader. Going to 100% cash is also a sound policy.
Notice the green 400dma was acting as good support and that has been broken. Dow Theory says bear market. 200 dma just starting to turn down, one of my indicators as being in the bear. All the major world markets are also in a bear.


http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=3&mn=0&dy=0&id=p70773677619&a=122904826

[nodoodahs]

Those that are saying this is a rally in a bear market ....

What were they saying in August 2004? May 2005? October 2005? August 2006? April 2007?

Let that help you make your decision.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.