Barron's Asks: Bear Market Rally?
In Barron's The Trader column,
Kopin Tan asks: "Is the Stock Market's recent resurgence just an ephemeral, bear-market rally?"
Before answering that, have a look at the chart at right. It accompanied his questions; the black lines are my own.
There are several things to be gleaned from this:
First, the Nasdaq remains the healthiest of the major indices. Thats could be due to strong sectors within it (i.e., Enterprise Software). Or it could be due to specific stock leadership, namely -- Google (GOOG), Apple (AAPL), Research in Motion (RIMM), or Baidu.com (BIDU).
Second, the down trend seems to be not yet quite vanquished. What was described by some as a breakout is now looking like it could turn out to be a false breakout.
Third, the SPX and Dow are at critical levels -- a failure at the trend line likely means more downside to come. And, the recent May highs appear to be a lower low to this old traders eyes. Any failure at this level means more trouble ahead.
Last, a further failure at the March lows would be disastrous for the indices.
Your mileage may vary . . .
Source:
Oil, Unemployment Rise, Stocks Fall
KOPIN TAN
Barron's June 9, 2008
http://online.barrons.com/article/SB121279288358653337.html
Saturday, June 07, 2008 | 12:00 PM | Permalink
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Love the site and check in a few times a day, but Im not all that impressed with the technical analysis approach taken in this post.
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=8&mn=0&dy=0&id=p77309536087&a=140357040
Bear market rallies typically peak at the 200 DMA. Chart these indexes, especially the S&P along with their 200 DMA and youll see the technical explanation for its failure.
note where the 2001-2003 rallies peaked as compared to the 1440 close in mid-May
Posted by: Aaron | Jun 7, 2008 12:14:14 PM
The strength of Nasdaq was there in pre 2008 as well. In summer of 2007 I bought equal amounts of DXD and QID..They were both losing positions for a while, then DXD started to recover and QID was lagging and lagging. I remember thinking to myself "should I switch to DXD taking my loses on QID. Probably because AAPL, GOOG, AMZN,etc is the only competitive edge US has left hence they might go relatively less damaged through this"... I was worried but didn't change my positions and then came 2008 and QID took off crazy, evening the difference with DXD...
Posted by: Mich(^IXIC1881) | Jun 7, 2008 12:24:01 PM
Aaron,
Agreed about the 200 day MA (now watch the 200 week MA !)
But there is plenty of validity for trendlines -- don't be too quick to dismiss them . . .
Posted by: Barry Ritholtz | Jun 7, 2008 12:34:33 PM
I'm compiling a list right now of "Bear bottom" callers.
Prudence demands public shaming and revocation of their pundit cards.
Posted by: ZackAttack | Jun 7, 2008 12:43:17 PM
From 6/1/07 to 11/1/07, we saw a divergence between XLF and QQQQ; after that the QQQQ fell hard.
We’ve been seeing a similar divergence since the March lows. My take is that the QQQQ will again follow the XLF down.
Posted by: DL | Jun 7, 2008 12:49:07 PM
Obviously, BR's comments are coordintated by Moscow as part of the global communist conspiracy's crusade to bring Goldilocks to her knees (as if that's not where she spends most of her time)
http://news.yahoo.com/s/nm/20080607/pl_nm/russia_forum_medvedev_dc_4
Posted by: Bob A | Jun 7, 2008 1:00:20 PM
THE S&P CLOSED BELOW what many chart watchers were flagging as a make-or-break level of 1370 on the S&P 500. Listen for the alarm bells from this group ahead of Monday's opening.
Yet Andrew Burkly of Brown Brothers Harriman is watching 1350. He says of a half-dozen bear-market bottoms over five decades, none has given up more than half the gains from a rally off a "re-tested" low, such as the one in March. That threshold sits at 1350.
Posted by: Mike Santoli | Jun 7, 2008 1:08:12 PM
Funny. You ignored January. Can't blame you. No one wants to imagine a steep decline.
~~~
BR: Didn't ignore it -- the lower low in March is now more importnant
Posted by: me | Jun 7, 2008 1:23:29 PM
Heh, heh, heh. Medvedev. And this from a country that literally runs on bribery.
The only leadership that could come from east of Europe would be a paternalistic, brutal oppression.
I believe the Western, Matrix-esque style of self delusional, propagandic-idealism is much more preferred, as well as much more successful in holding the attention of the masses.
Nobody gives a shit what Russia thinks.
Posted by: Palm Me Some Rubles | Jun 7, 2008 1:24:28 PM
IMO Equities are calling the Feds bluff re holding interest rates steady. We will challenge the March low ahead of the 24/25 meeting. Gold and Oil will rally in anticipation of Uncle Ben folding. Look for post-Vix +40 opportunity to reverse. The Fed has to throw the US consumer or the Financials under the bus. Which will it be?
Posted by: Jay | Jun 7, 2008 1:35:43 PM
BR - "But there is plenty of validity for trendlines -- don't be too quick to dismiss them"
Agreed. The validity of any technical indicator is a derivative of the degree to which the indicator is followed (and acted on). It doesn't really matter if the indicator is phases of the moon or the color of BR's sweater. What matters is whether enough money thinks it matters.
Posted by: Estragon | Jun 7, 2008 1:41:22 PM
We’re beginning to see the signs that the stimulus may be working," Mr. Bush said during a swearing-in ceremony for the housing secretary, Steven C. Preston.
http://www.nytimes.com/2008/06/07/business/07econ.html?_r=1&oref=slogin
Bush has got some interesting indicators he's looking at... I wonder what they might be? Left-handed five iron sales up at Sportmart in Toledo? Average Slurpee sizes at trend in states beginning with "M?" Cheney's girth?
Posted by: VennData | Jun 7, 2008 2:00:24 PM
Jay wrote:
The Fed has to throw the US consumer or the Financials under the bus. Which will it be?
Buh-bye Financials. And I want to see that list of bottom callers. Here's a start, in no particular order:
Joe Kiernan
Steve Liesman
Rick Santelli
Michele Caruso-Cabrera
Dennis Kneale
Jim Cramer
(notice a theme here...)
Posted by: MitchN | Jun 7, 2008 2:07:08 PM
MitchN, you can't seriously believe the Fed will deviate from the route it's been following for 20 years?
I'd say buh bye US Consumer.
Posted by: Greg | Jun 7, 2008 3:30:39 PM
Looks like the trend will remain downward but momentum will be halted due to that broken trend line now acting as support. Look for lots of chop chop in a slight downward trend.
Posted by: Max Thrax | Jun 7, 2008 4:29:46 PM
the Western, Matrix-esque style of self delusional, propagandic-idealism
I think it is simply called delusion of free-will.
Posted by: D. | Jun 7, 2008 4:34:30 PM
Just like the last recession, there're many fake rallies in a bear market (this is just the first one).
I sold my only taxable position last month since I didn't see any improvement in the economy (fundamentals), and everything's way overbought at the time.
Don't be surprised if we see the March low again in the summer. Other than automatic purchases, just be sure you have enough cash for any bargains.
Posted by: Good Money Blog | Jun 7, 2008 5:31:33 PM
Nobody mentioned the Dow Transports. But if I'm not mistaken, they set a record high this week, or close to it. And that is very bizarre, with runaway oil prices and weakening GDP growth.
Meanwhile, the Dow Industrials are the weak sister of the averages. During the past few weeks, they've badly underperformed the S&P, and especially the Naz and RUT.
I'm no Dow Theory export, but there's definitely a divergence here. I lean toward it being resolved on the downside. Where is my 20% decline?
Posted by: Jim Haygood | Jun 7, 2008 6:07:27 PM
Well, lets see. Given the Fundamental Backdrop for the U.S. consumer (~71% of GDP) should there be any doubt that this is (has been) simply a Bear Market Rally? DOW, IXIC, TRAN, WSLH etc. ALL broke decisevly through their 200 dma's. The Transports (specifically the rails) have broken above the 200 dma (but are looking Toppy to me) with the rest still below.
I agree with Barry that the Big Rise in the Nasdaq has been largely due to big moves in about 9-10 stocks-- APPL, GOOG, RIMM, AMZN, QCOM etc., and is not broad based. These charts (Apple, Google and Rimm) look Ripe for a substantial pull back -- especially when the Momentum/Hedge Fund traders leave. Not to say that they couldn't go higher short-term-- I think they probably will-- (pushing the Nasdaq into overhead resistance at the 2600-2650 level) upon a substantial pullback in the price of Oil/the Dollar resumes it's rise.
But with the steep decline in Home Values (especially California --big contributor to GDP) with no bottom yet in sight, $4.00+ dollar a gallon gas (even more for diesel), YOY increases across the board for commodities leading to increasing food and energy bills, (not to mention current healthcare costs and education), I really don't see a case as to why these Indexes are beginning (or should continue) a Bull Market.
I keep hearing about how Technology is the place to be and that their Balance sheets have never been in better shape, with some 3 Trillion dollars sitting on the sidelines "just waiting" to be pumped into Equities.
I don't agree. That money can stay parked right where it is-- on the sidelines-- or find another safe home someplace else. Why should companies invest heavily improving their business if the consumer confidence continues to deteriorate and the U.S. consumer pulls back heavily in their spending-- especially for the lastest Piece of Techno-Crap. How much in home equity has been lost to the downturn in the housing market? I'm willing to bet it's at least (or is going to be with Mortgage Rates holding steady and/or Rising) somewhere on the order of magnitude on this purported sidelined amount of cash (not including all of the bad debt currently sitting OFF the Major Investment and Commercial Banks Balance Sheets).
If this is the start of a new Bull Market I believe it would be the shortest Bear Market in history -- from at least a P/E multiple contraction/expansion standpoint.
In my view the March "Re-test" of the January lows (+/- 3% on the INDU, SPX) is way too early to call as a successful "retest" of anything.
I don't see these Indices trending higher for much longer. I don't see it from a Technical Perspective. I especially don't see it from a Fundamental Perspective--especially with respect to the U.S. consumer AND U.S. Commercial/Investment Bank balance sheet.
And I don't see what the big craze is for "Technology Stocks". The 'new' 3G I-Phone is quite probably already priced into AAPl's stock, and GOOG and RIMM are looking to pullback substantially when the other indices resume their downtrends, and will yank the Tech sector down with them.
If we're at least halfway through the credit crises, according to Jamie Dimon or Hank Paulson, why are the Major Financial Stocks stocks still selling off?
If the fundamental backdrop of the economy is relatively sound why does at least one member of the PWG on Financial Markets (including "The Decider" himself) need to make special public appearances to put the Creme onto the Economic Outlook, upon substantial Stock Market Sell-Offs?
I think its going to be 'Awhile' before the Major Banks rebuild their capital. I think its going to be 'Awhile' before credit card companies extend credit as in years past...
Posted by: John | Jun 7, 2008 7:18:03 PM
Barrons article "Oil, Unemployment Rise, Stocks Fall" free as usual @Marketwatch.com.
Click link (blue) underneath.
Posted by: Barron's: Oil, Unemployment Rise, Stocks Fall | Jun 7, 2008 7:31:40 PM
...and the interview wit Arjun Murti is there, too.
"Arjun Murti says gas may have to hit $5.75 a gallon before consumption cools enough to take the heat off fuel prices."
Posted by: What Mr. Crude Oil Sees Ahead | Jun 7, 2008 7:35:53 PM
Having started in the business as a Merrill broker in January 1973 at the very top in that era and retired years ago, I have one thing I would like to pass on.
Everyone is waiting for the bounce. In my opinion our economy is in deep trouble and may never regain its footing....well, maybe one day. I urge all readers to follow Richard Bernstein and David Rosenberg of Merrill for their insights.
Preserve your cash. In my experience it is wisest to save when yields are next to nothing and to invest when interest rates are the highest.
I predict that few will beat 2 or 3 % in the next few years, and most will be probably will be large losers. This is a drip drip drip down market. Yes, there are always winners, but at these times safe income is the name of the game.
Barry, i would urge you and others to publish your 1 year and 3 year returns so we investors can gauge how successful you really are. Surprise us.
Posted by: Robert | Jun 7, 2008 7:52:22 PM
All this is not peak oil, this is just dollar bottom out.
Thanks to ponzi CDSs, U.S. trade deficit and debt are just coming to maturity.
If I were the Chinese/ Indian/ Brazilian/ Russian, I would convert all my dollars into oil, waiting for the credit crunch and the recession to enact the much awaited bankrupcity of the U.S.
If there should be a contratrian indicator to look for, I'd bet on all those recent (and so lame) strong dollar allegations from the over-rotten US talking heads.
I bet on a black monday next week, lead by the credit crunch. Have a look at this graph :
http://tinyurl.com/5h3puk
Posted by: michange | Jun 7, 2008 8:28:25 PM
"Those who have knowledge, don't predict. Those who predict, don't have knowledge." ~ Lao Tzu
Posted by: The Financial Philosopher | Jun 7, 2008 9:08:21 PM
Given everything that's gone on, historic housing bust, $140 oil, the recession will be televised, etc, you have to say that this stock market is amazing in it's ability to take a punch.
If the news were to get better, and ultimately it will, there will be one heck of a rally.
Posted by: mh497 | Jun 7, 2008 10:03:59 PM
