This just in....demand still stinks.I hope that anyone who has felt this has been a bear market for a while (a normal one as I think or otherwise) is not surprised that we have made a new closing low for the S&P 500.
I've made several comments about how text book the bear market has been starting from rolling over slowly last fall worrying very few people, there being a good sized feel good rally in the spring and the constant questioning if a bottom is in.
We can only hope that the end of the bear and transition into the next bull is just as textbook.
If so, then we might expect to see a turn up met with disbelief a few months from now (maybe Q1 2009?). Things will start to green light when the S&P 500 goes back above its 200 DMA. Regardless of when this occurs, buying stocks at that time will be uncomfortable.
You might be thinking that it would be uncomfortable to buy stocks today so is this a bottom? I'm not worried about the bottom I am looking for where demand gets healthy. I can't recall hearing about demand for stocks elsewhere but the things I have been writing about all along have focused on health of demand but qualifying this approach that it would not get anyone out at the top or in at the bottom.
The folks on TV seem mostly resigned to the fact that this is a bear market despite a few bottom callers early in the day on Wednesday. I view this as the beginning of a shift in sentiment. Resignation that there is a bear market is a step on the road to skepticism that will invariably come from the mainstream at some point.
I write a lot about this sort of thing because health of demand (the market above or below its 200 DMA) can be easily monitored and acted upon by anyone. Down zero in a bear market is not realistic but down less is possible.
8 comments:
Obviously the 200 DMA seems to be your primary indicator for healthy demand. My question: what other indicators do you consider when evaluating demand? Increased volume? Put/Call ratios? Advances vs Declines? Great blog - an everyday read for me.
The bear's not over until stocks are good buys again: single digit P/E's, dividend yield over 6%
cc, i try to keep this as simple as possible--for that just means 200 dma. any of the others are valid, just my own preference. things like breadth are useful to me for confirmation of various things but i hardly ever look at put call ratios.
dagnygromer, you may never buy a stock again.
The average bear market takes the S&P down 34.1%. We are now down about 20% off the high in last October.
http://tinyurl.com/6fkcvu
How many think this will be a weaker than average bear market? I gotta figure that since it's the financials that are corrupted this time that we should be looking at at least 40% down. Maybe more, but at least 40% down off the top.
In the 2000-2002 bear market it had a 49.1% drop over 31 months. And that was tech folks, not financials.
The weather is nice. I'm going sailing until maybe mid September.
Every time I hear/read you say something like "demand for equities is not good" I internally translate that to "stocks are going down". Or when you write that you use the 200-DMA as your "guage of demand" for determining your market exposure: isn't that just a fancy way of saying "buy stocks when the market is going up, sell stocks when the market is going down"? Don't get me wrong - I do see merit in momentum/trendfollowing strategies. But I get the feeling you're trying to make the concept sound more scientific than it really is, like it's some sort of application of economics theory.
Perhaps you use that terminology as a way of explaining why trendfollowing works? i.e., when the market is going down, demand is poor, which leads to the market going down even more. But I think that's a tautology - there's really no logical difference between the statements, "demand for stocks is poor" and "stocks are going down" - neither one "explains" the other, they're just two ways of saying the exact same thing.
Roger,
I have a friend that trades purely in debt instruments, and he says "I don't know anything about stocks."
While I consider that normal intellectual modesty, it made me think about the "signals" for improved demand.
When you stop and think (about the obvious), any companies that are having trouble meeting their debt obligations are, pretty much by definition, going to have a struggling stock price.
My point is simply this: with so much being written about how credit remains seized, and how, in the financial sector at least, more capital is needed (to avoid insolvency - even if you are a GSE), one simple "signal" for something suggesting a turn/bottom in the equity markets has to be the reduction of these (horror) stories of financial armageddon and credit being beyond tight.
As long as lenders are severely stringent, debt-supported growth (including earnings) has to be muted (suggesting that a "V-shaped" bottom is pretty unlikely: there really should be no worry that we'll "miss" the sign of a recovery and the "first leg back up") (although we might miss the retracement of the excess/capitulation selling - but to be honest, that's not what your blog is about).
R
anon 9:08, i think MORE scientific is not right. i am trying to make that sound very simple, better yet simplistic, easily done by anyone.
beyond that there is an element of saying the same thing a couple of different ways however the market doesn't go below the 200 dma very often so it is not a short term indicators.
Rick what you describe sounds like will be part of the disbelief process that hind sight contributes to the bottom.
"Sure they solved their debt problems but they have other issues that are worse" is what we might here. People smart enough to heed that sort of thing would probably do a better job of catching the bottom than i will by relying on a cross above the 200 dma.
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