Don’t Get Complacent: It’s Still a Bear Market

At the first sign of strength, most investors become amnesiacs. They become so concerned with making money, or missing the chance to make up losses, that they rush into stocks at the very time they should be most cautious. Now, is a time for cautious optimism and multi-dimensional thinking.

- Steven Sears, “Don’t Forget the Hard Lessons of 2008″ (subscription required), Barron’s Online, Monday January 5

Stocks have now rallied pretty powerfully from extreme panic and oversold levels. The S&P tacked on about 200 points from the intraday low on November 21 through the intraday high on Tuesday (January 6) - a 25+ percentage move. Correspondingly, stocks are starting to look more attractive and people are beginning to want to get back in. But, don’t forget that this is still a bear market and a sustainable bull market will not begin until the economy bottoms and starts to improve.

We’re not there yet. For example, on Wednesday morning, Intel (INTC) lowered its fourth quarter outlook for the second time. From expectations of $10.1-$10.9 billion in revenue in its outlook from October 14, the company lowered it to $8.7-$9.3 billion on November 12, and now it's lowered it again to $8.2 million. That represents a 23% decline in revenue from the year ago period when revenues came in at $10.7 billion. It’s very clear then; the economy is still worsening and not yet improving.

This rally can probably continue a bit more as investors pile in response to rising stock prices, professionals start to call the bottom and optimism about the new administration reigns. But it won’t last. You’re being presented with an opportunity to get out before another leg down in what will continue being a long and grinding bear market. Don’t get complacent. It’s still a bear market.

Comments

[investor88:]

Greg has written a good article with a clear message. Still a bear market until gloom lifts and the economy really recovers.

Agree its the last train to get out, sell into strength rather than a time to be piling in.

Jan 08 08:36 AM