Bear Market Thoughts: Looks Like Another Downturn

Using just a little common sense and some price/volume action can tell you a lot of what is going on in the major indexes at this time. While I’m somewhat clinging to the hope that the US markets are going to rally further after Friday’s collapse I’m beginning to think we about ready to start another market downturn.

Days where the Dow has been negative outpace up days almost 2-1 and there hasn’t been an up day where volume has exceeded the 50 day moving average since early December. For this market to move higher market internals really need to improve soon. We seem to have just bounced off of strong resistance and I can’t think of a single chart pattern in technical analysis suggesting that we are going to recover from these levels. It seems like the lows are acting like a magnet and drawing us down.

Take a look at this chart from the early 30’s to remind yourself that bear markets are a series of lower highs and even lower lows, and we may be witnessing one such high coming to an end. I have a feeling I’ll be referencing this chart a lot over the course of 2009 as we don’t have much else in the way to use as comparison to these volatile times.

7773 - 9653 = 24% rally

9653 - 7449 = 23% decline

7449 - 9088 = 22% rally

9088 - ????

The TSX has been somewhat of a bright spot lately in that the volume has been increasing albeit by small amounts as this rally has moved higher. I’m sure it has something to do with it being such a resource heavy index as this sector has bounced lately.

Comments

[investor88:]

Thanks to Jeff for an insightful analysis whilst the whole world including longtime bears have turned positive and are looking at the next 40% leg up in the indices. I agree with Jeff's analysis and sense some risk on the downside going forward.

Jan 11 09:22 AM

[Paul Price:]

Aren't you the same guy who turned very bearish on Dec. 24th?

You said then,

Markets Are Pointing Down
by: Jeff Pierce December 24, 2008

Yesterday, I got a sell signal on the markets indicating that it’s more profitable to be short here than it is to initiate new long positions. It pays to be on the side of the trend and the market's inability to continue its current advance can be viewed as a loss of momentum to the upside. It’s tough to know how to view any movement in the markets given the light holiday trading so it’s best to go forward with a note of caution.


Right before a huge multi-day rally.

Jan 11 09:34 AM

[DaveW:]

with the HAL 9000 buy/sell programs at work right now the markets could go either direction. Hedge your trading and keep tight stops. As for Jeff's record, I personally change my mind when new information is in. The markets will retest lows, sooner or later, one must be nimble under these conditions and open-minded. Single-minded bearishness or bullishness will get you in trouble.

Jan 11 12:13 PM

[Jeff Pierce:]

While I don't normally feel the need to defend myself here on SA I do want to point something out. The articles of mine you see here are only half a picture I paint regarding the markets. SA picks and chooses which articles of mine they want to off my blog and reprints them here for the benefit of their readers.

I am an ultra short term trader and yes I did indeed become bearish a the time you stated and stayed away from equities because I felt like the market could really get slammed. However, whipsaws have become an everyday thing here and the markets did turn around and I became slightly bullish on Jan 2nd.

zentrader.ca/blog/?p=7...

I'm trying to get on board with a wave here that's going to last more than a week but it just doesn't seem to be happening. Everytime the markets look like their ready to push upward into new territory they retreat. Just when the markets look like their going to crash, they bounce.

Thus has been the dilemma. Do you ride the momentum or be a contrarian investor and do the opposite of what makes sense? Being flexible as a trader is one of the most important lessons everybody should have learned from last year. I'm sticking with what I know and every trade I make is out in the open on Covestor and my blog. If you have that type of transparency in your trading I'd love to see it and trace your performance. If your trading is providing you with better results than mine I'm willing to listen to what you have to say.

Read my blog to get the whole picture before you criticize, it makes you look uninformed.


On Jan 11 09:34 AM Paul Price wrote:

> Aren't you the same guy who turned very bearish on Dec. 24th?

>
>
> You said then,
>
> Markets Are Pointing Down
> by: Jeff Pierce December 24, 2008
>
> Yesterday, I got a sell signal on the markets indicating that it’s
> more profitable to be short here than it is to initiate new long
> positions. It pays to be on the side of the trend and the market's
> inability to continue its current advance can be viewed as a loss
> of momentum to the upside. It’s tough to know how to view any movement
> in the markets given the light holiday trading so it’s best to go
> forward with a note of caution.
>
>
> Right before a huge multi-day rally.
>

Jan 11 03:19 PM

[TA:]

Nice takedown by Paul Price

Jan 11 06:09 PM

[rber:]

Response to Zentrader defense
It makes a person wonder if, in addition to running the funny money machines full tilt, uncle sam has set up skunk-works boiler room trading facility to keep the markets within a desired trading range.

Jan 11 11:29 PM

[sorgmot:]

Let's absorb other.s views and recheck out own.

We made a 56% gain in our short stocks portfolio in 2008 and we closed out too early and could have made more. Was that good or bad?

We are looking for the current DJIA rally to cap out in May 2009.

Then the DJIA begins to fall again to November 2009 and finishes below the 2008 DJIA low. This could also be wrong. For example a few more wars could spoil our plans for a rally from now to May 2009.

We are surprised by how weak the current president elect looks. Is he really the junior varsity of the Clinton machine? No new or enlightened views in his speeches or appointments. More bad news for the USA population and collapsing economy.

Good Luck

See your own investment consultant before investing.

Jan 12 11:27 AM