Big Bear Markets: More Than Falling Stock Prices
by ilene - June 16th, 2010 5:12 pm
Big Bear Markets: More Than Falling Stock Prices
Many infamous authoritarian regimes emerged during or after big bear markets
Courtesy of Elliott Wave International
Fear and uncertainty that drive a severe bear market are the same emotions which can set the stage for authoritarianism, in most any nation.
"Bear markets of sufficient size appear to bring about a desire to slaughter groups of successful people. In 1793-1794, radical Frenchmen guillotined countless members of high society. In the 1930s, Stalin slaughtered Ukrainians. In the 1940s, Nazis slaughtered Jews. In the 1970s, Communists in Cambodia and China slaughtered the affluent. In 1998, after their country’s financial collapse, Indonesians went on a rampage and slaughtered Chinese merchants." - Bob Prechter, Wave Principle of Human Social Behavior, p. 270
Why do authoritarian tendencies emerge only during bear markets in stocks?
"As society becomes more fearful, many individuals yearn for the safety and order promised by strong, controlling leaders." - The Socionomist, May 2010
Bob Prechter’s new science of socionomics explains that stock market fluctuations mirror trends in people’s collective mood. In simple terms, when the market is buoyant, it indicates positive social mood; the opposite when a bear market takes over.
The fascinating part is that because the stock market and social mood trend closely together, a forecaster can apply Elliott wave analysis to both — and predict both.
Generally, widespread brutalities and wars do not follow the first phase of a bear market. Extreme violence, when it does occur, often follows the worst part of the market’s downturn — like the end of the Great Depression, a negative social mood period that ultimately ushered in World War II.
But even during the first phase, a negative social mood grows. So, if a forecaster determines correctly where in the wave structure social mood resides, he can make educated forecasts about what will follow in society — given what has happened before under similar social mood trends.
Authoritarianism is a subject of heated discussions these days, which makes it a timely topic for a socionomic study. The latest, two-part issue of the monthly Socionomist gives you just that: A look at historic trends and specific forecasts for the years ahead.
Learn How to Anticipate and Prepare for Political Conflict and War, Bull Markets and Bear Markets. The 118-page Independent Investor eBook covers a vast array of investment topics and exposes myths that mainstream investors accept as fact. Once you learn…
Facebook
Twitter
LinkedIn 
del.icio.us
DiggA BEAR MARKET OR JUST A CORRECTION?
by ilene - June 8th, 2010 4:06 am
A BEAR MARKET OR JUST A CORRECTION?
Courtesy of The Pragmatic Capitalist
Readers have likely noted my decidedly more bearish tone of late. Coming into 2010 I was fairly optimistic about the equity markets and the economy in the first half of the year with expectations of a second half slow-down. The
But as the market continues to decline we have to ask ourselves if fear isn’t getting a bit ahead of fundamentals? Are investors too bearish and pricing in too much negativity or are they not bearish enough? In other words, is this a new bear
“Well, so far the S&P 500 is down nearly 10% from the highs, so this is indeed a correction thus far but more often than not, declines like these morph into something more severe — even when we are in durable economic expansion phases like 1987 and 1998. This recovery is tentative, at best. But the numbers we are looking at is a 50% retracement of the March 2009-April 2010 runup, which means 943 on the S&P 500 and the reality that lows in the market, whether they be interim or more fundamental, tend to occur with the index 20% below the 200-day moving average, which at this stage would be 879. So at least we have a defined range of when to begin to put money to work. A break below that range would indicate that Mr. Market is sniffing out a double-dip recession, not just a visible slowing.
The ECRI leading index is down to a 47-week low, which is pointing towards much softer growth ahead and the Shanghai equity index is off nearly 30% and perhaps giving us a reading on global growth prospects. The one thing we do know is that the last time China was down 30%, this was a train hardly worth boarding in terms of how to be positioned
…
‘Defensive’ Stocks: Are They the Ticket in a Downturn?
by ilene - June 3rd, 2010 3:45 pm
‘Defensive’ Stocks: Are They the Ticket in a Downturn?
In a severe sell-off, 99 percent of ALL stocks can fall.
By Elliott Wave International
Approximately three out of four stocks go down in a bear market. This ratio doesn’t just apply to high beta names; historically, 75 percent of all stocks go down when the general market falls.
Considering we could be headed into a severe bear market (read Bob Prechter’s latest special two-issue Elliott Wave Theorist, if you haven’t yet), we could see more than 75 percent of stocks take a dive. In that case, even a basket of "defensive" or "quality" names isn’t likely to help your portfolio. What good are dividends when you’re losing far, far more through capital depreciation?
On May 20, when the DJIA lost 376 points, 497 out of the S&P 500 stocks ended the day lower. (In other words, 99 percent of stocks fell.) Yet a financial television host recommended "defensive" names the day after. Wouldn’t his viewers be better served if he said, "You may want to step aside for now"? Apparently, stocks of one kind or another must be recommended — no matter what the market is doing or is expected to do.
How about "quality" stocks that don’t fit the "defensive" category, like blue chips or major technology names? The 1973-1974 bear market provides a clue. The "nifty fifty" stocks were "glamour" stocks; pundits said the "nifty fifty" should "be bought and never sold." However, by the time the bear market bottomed,
- Polaroid cratered 91% (eventually went bankrupt)
- Avon nose-dived 86%
- Xerox fell 71%
- Standard Brands Paint (eventually went bankrupt)
Here’s what Prechter said on the matter in his September 2009 Theorist: "When the stock market overall ended its bear market in the fourth quarter of 1974, the nifty fifty had fallen substantially from their highs, and many investors continued to hold them under the belief that they would come roaring back. But they underperformed most other groups of stocks throughout the rest of the 1970s and into the 1980s." [emphasis added]
Similarly, big-name stocks that fell in 2007-2009 have yet to come close to fully recovering. Today’s favored stocks could likewise nose-dive.
Learn from the past. Avoid the mistake of holding a defensive or quality stock "all the way down."
*****
Read Part One of Robert Prechter’s Latest Two-Part, April-May Theorists FREE
The April-May Theorist series entitled "Deadly Bearish Big Picture" reveals a lucid…
This Bear Market Is Nowhere Near A “Buying Opportunity,” Says Rosenberg
by Chart School - May 31st, 2010 12:28 pm
This Bear Market Is Nowhere Near A "Buying Opportunity," Says Rosenberg
Courtesy of Henry Blodget at Clusterstock
Some not-so-fun facts from David Rosenberg of Gluskin Sheff:
We went back to the history books and found that at fundamental lows in the S&P 500, whether they be in real bear markets or in severe corrections in a bull market, the index bottoms when it gets 13% below the 50-day moving average and 24% below the 200-day moving average. As of Friday’s close, we are talking about a market that is barely below the 50-day m.a. now and 5% below the 200- day moving averages.
Message — keep your powder dry.
[Note: The chart below from stockcharts.com suggests that Dave has transposed the current numbers: We're about 5% below the 50-day and basically even with the 200-day...]
Image: Stockcharts.com stockcharts.com
See Also:
JPMorgan: Here’s Three Signs That We’ve Hit The Market Bottom
Now Everyone Thinks The Market’s Going To Crash
Is The Recent 10-Year Reversal Also Signaling A Huge Fall In The Market?
Dow Jones Masochism
by ilene - May 30th, 2010 3:25 pm
Dow Jones Masochism
Courtesy of Joshua M. Brown, The Reformed Broker
Brett Arends has a story up over at WSJ that makes the case for more pain – that the March ’09 bottom wasn’t quite painful enough to have been THE bottom for this cycle. The article’s an amusement park for shorts, but does a nice job categorizing the items that could lead to another brutal beating for stocks.
The slide that began in 1969 didn’t end until 1982. The slump after 1929 didn’t give way until the late 1940s. Japan’s gloom is still with us.
In general, the bigger the bull-market boom, the bigger and nastier the bear market that follows. The bull market of the ’80s and ’90s was the biggest on record. So expect the bear that follows to be ugly and tenacious.
And for some perspective, Lisa Haney throws in this Dow Jones Industrial Average bear market guide…
The 2007-2009 plunge is the worst on record, but according to some, not nearly damaging enough considering the run-up in asset prices that preceeded it.
Source:
May’s Big Selloff Could Be Just The Beginning (WSJ)
TECHNICAL PERSPECTIVE: WHERE’S THE VOLUME?
by Chart School - May 29th, 2010 9:35 pm
TECHNICAL PERSPECTIVE: WHERE’S THE VOLUME?
Courtesy of The Pragmatic Capitalist
By Decision Point:
FROM A SUBSCRIBER: Hi Carl. I’ve never written but have followed you for many years (since AOL) and have learned more about reading the market from you than any other source. You have such a clear and common sense view that it is really refreshing. I love the new daily blogs and am so glad Erin is learning the ropes. I would write her directly, but don’t see her email address anywhere. I rarely disagree with what is said, but in this case I am very suspicious of a bullish interpretation of today’s (May 27) rally, mostly due to the low volume. It seems more like a bear market, short covering rally to me. Was wondering what you think of the volume issue. Thanks for any comments.
Thanks for the compliment!
I try not to engage in discussions in order to reconcile differences of opinion about the
After several days of sloppy, downward-sliding price action, on Thursday the market finally had the first day of what could be a full rebound from very oversold conditions. Sloppy action in oversold conditions signals a very dangerous situation, one from which a crash can result, and on Thursday we breathed our first conditional sigh of relief.
While we have emphasized the danger involved “buying into weakness” with oversold markets, we have believed that the odds favor an end to the correction because we are technically in a long-term bull
It is true that volume was pathetic, but volume has been unimpressive throughout this bull market, and for Thursday there is also the issue of the upcoming Memorial Day weekend. People are leaving town early.
We can also see a clear descending wedge pattern, a bullish pattern which has a high reliability for resolving to the upside.
Most important is our philosophy that price is primary, breadth and volume are secondary. Not that we don’t look at breadth and volume, but they need to be subjectively interpreted based upon the bull or bear bias of the market. As a result, none of our mechanical timing…
Bigger Than A ’10% Correction’?
by ilene - May 26th, 2010 9:20 pm
Every Big Bear Grew From a Cub
By Elliott Wave International
The famous "10% correction" that market pundits talk about sounds so nice and tidy, so predictable and tolerable. It’s as if this "cute little correction" came neatly wrapped, like an M&M candy character, and smiled at you and your family after you open the box.
If only it were so.
"If all the market ever did on the downside was dip 10% once every two years, then investing would be easier than shooting fish in a barrel. Obviously, this is not the case. The fact is that the stock market’s movements are a fractal. Declines come in widely varying sizes." - The Elliott Wave Theorist, December 2001
There is no way to know in advance whether a particular market downturn will fall 11%, 35% or 89%. Even the Wave Principle only forecasts probabilities-- not certainties. One thing that is certain — every bear market reached a 10% drop before prices fell even further.
And another near-certainty is that too many money managers will use the phrase "buying weakness" when the market falls 10%. On May 7, after the Dow Jones had fallen several hundred points in a few days, two money managers being interviewed side by side said in effect, "Buy." Not a word was said about caution. Not a word was offered about even the possibility of a major trend change in the market.
On the other hand, it was refreshing to hear a representative of a fund family say, "I don’t know why anyone needs to be a hero, and try to catch the bottom."
You may be tempted to jump back in because the market has recently "corrected." Yet consider what EWI’s Short Term Update subscribers read on May 7 — ". . .we would caution that some of history’s largest stock declines have occurred only after stocks were deeply oversold."
Two key features of the Elliott Wave Principle is its ability to establish a price target for the current trend, and a time range.
In his latest Elliott Wave Theorist (a two-part April-May issue), Robert Prechter tells why market participants should look far beyond a mere 10%-15% move in the now-unfolding trend.
Read Part One of Robert Prechter’s Latest Two-Part, April-May Theorists FREE…
The April-May Theorist series entitled "Deadly Bearish Big Picture" reveals a lucid picture for 2010-2016. It’s the flipside of Robert Prechter’s February 2009 Forecast for a ‘Sharp and Scary’ Rally. Click here to download the 10-page part one for FREE now.
“On Schedule for a Very, Very Long Bear Market”
by ilene - May 25th, 2010 7:41 pm
Prechter on Yahoo! Finance: "On Schedule for a Very, Very Long Bear Market"
Via Elliott Wave International
Robert Prechter discussed the recent global sell-off that has sent all major U.S. averages 10% below their 2010 highs with Yahoo! Finance Tech Ticker host Aaron Task on May 20, 2010. Prechter says that the current climate shows that "we’re in a wave of recognition" where the fundamentals are catching up to the technicals and that it’s time to prepare for a "long way down."
For more information from Robert Prechter, download a FREE 10-page issue of the Elliott Wave Theorist. It challenges current recovery hype with hard facts, independent analysis, and insightful charts. Robert discusses why he things the worst is NOT over and what you can do to safeguard your financial future.
ROSENBERG: 400 POINT RALLIES ARE A REASON TO BE BEARISH
by ilene - May 13th, 2010 9:59 pm
ROSENBERG: 400 POINT RALLIES ARE A REASON TO BE BEARISH
Courtesy of The Pragmatic Capitalist
Excellent note this afternoon from the always cheerful David Rosenberg. Mr. Rosenberg notes that 400 point rallies and increased volatility are not the signs of a bull market, but rather a bear market! Rosenberg writes:
“The obvious question is: how can the bull market possibly be over considering that we enjoyed that amazing 405-point rally on the Dow just three days ago (Monday, May 10)? Wasn’t that an exclamation mark that the bull is alive and well?
Far from it. There have been no fewer than 16 such rallies of 400 points or more in the past, and 12 of them occurred during the brutal burst of the credit bubble and the other four took place around the tech wreck a decade ago. See Chart 2 below.
In other words, the most valuable information contained in last week’s intense volatility, underscored by the 400-plus point bounce in the Dow, is that it’s time to take chips off the table and brace for the breakdown. “
While traders have become very euphoric about the prospects of the recovery and the continuation of the bull market now that government’s around the world have saved the day (once again!) Rosenberg notes that huge spikes like the recent move in the VIX are not bullish signs at all, but rather preceded major market downturns:
Buckle up boys and girls. Last Thursday might have only been an appetizer.
Source: Gluskin Sheff
Will the Bear Market End the “War on Drugs”?
by ilene - April 26th, 2010 12:25 pm
Will the Bear Market End the "War on Drugs"?
Marijuana legalization has come a long way (in a short time), baby
By Robert Folsom, courtesy of Elliott Wave International
In 1996 California voters approved Proposition 215, which extended legal protection to doctors who recommend and patients who use marijuana for medical reasons. This inspired the "medical marijuana" movement, though it made only sporadic progress in the decade that followed. Beyond a few mostly Western states, the movement found meager legislative support.
Until around 2007, that is.
In 2007 and 2008, legislatures in 27 states considered bills related to marijuana — each one sought to relax or eliminate the current penalties for use and/or possession in those states. The trend continued into 2009 and 2010. This past March saw the most far-reaching legislative proposal yet, again in California: the state legislature will vote on a bill to allow adults over 21 to personally possess and cultivate marijuana. It would also implement a regulatory regime that taxes pot sales by licensed vendors.
The trend itself may not be news to you, even if you don’t know all the particulars. This past January, an ABC News/Washington Post survey found that 81% of Americans support the legalization of medical marijuana (up from 69% in 1997). The same survey found 46% support "legalizing small amounts of marijuana for personal use" (up from 22% in 1997).
Still, you may not have gotten the memo about this past Tuesday (April 20) and the event known as 4/20, aka "Pot Day." Participants made a public show indeed of how much this day means to them: behold the crowd gathered for the occasion on the campus of the University of Colorado.
Yes, that cloud is exactly what you think it is.
This apparent willingness toward tolerance and use also extends to controlled substances which create clouds only a user might see. Earlier this month The New York Times reported the experience of a retired clinical psychologist who was deeply depressed while going through treatments for kidney cancer:
…
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(
