Bear Market Over? Not So Fast

As GM Goes, So Goes The Nation, The famous remark by Charles Wilson is as appropriate now as it was in 1953. Charles Wilson declared before Congress that "what was good for the country was good for GM and vice versa." Does GM’s (GM) rise to power and decline towards insolvency parallel the rise and fall of the US? GM’s market cap reached approx $50 billion in 2000. Currently its market capitalization dropped below $1 billion to levels last seen during the 1920’s.

Virtually all car makers (even Toyota (TM)) suffered sales declines reaching 36% or more compared to March 2008. Throughout the US sales totaled 857,735 cars and light trucks, down 37% from 2008. The good news though is that it is up from 688,909 vehicles sold in February and was the highest total since September. February’s sales were down 41% from a year earlier. Is this enough to keep the whole US auto business from going down the drain? As GM goes, so does the Nation????

Time will tell, but as Nassim Taleb states in the Black Swan: Expect the Unexpected. So many are calling a bottom of this economic abyss. This is one of the greatest problems with Bear markets and their rallies. They instill false hope and quickly take investors' money. More capital has been lost trying to catch the bottom. This bearish signal confirmed by the general consensus among “Gurus” was that a bottom was in.

Can the stock market really fall any further? Too many don’t believe it can happen. The stock market fell in the Great Depression almost 90%. Just look at the Nasdaq in the 2002 period.

Again it is anyone’s guess, but from a technical standpoint there exists great weakness. On March 30 from a technical analysis standpoint a very significant day, a proverbial 90 percent down-day. This is an extremely negative technical sign. It’s not flawless but makes technicians concerned. A 9 to 1 up/down day is when the volume of rising stocks on the NYSE is nine times the volume of falling stocks. It is called momentum thrust, from Martin Zweig in his book “Winning on Wall Street.”

The question is will we test the recent lows and take them out?

If these lows are surpassed the bear market will be re-confirmed, and quite possibly strengthen in velocity. It is obvious that we will see greater unemployment and the economy will worsen. With the Fed spending money more than a shopaholic what is one to do?

Simple…Stay flexible. Do not even think about picking up bargain stocks (unless they are Gold Stocks). Diversify your currencies, have at a minimum of 5% of your net worth in Gold. Bear in mind as much as it seems everyone thinks gold will go to thousands of dollars.. it might fall. Anything can happen, but you are purchasing an insurance policy.

Comments

[Larry House:]

Good advice.

Apr 02 04:38 PM

[Matt Miller:]

Lows will hit 550 on the Dow and 450-550 on the S&P. We have two more head fakes after this one until we've bottomed in late 2010 - early 2011.

Apr 02 05:10 PM

[schlumpf:]

its a bull trap.

Apr 02 05:14 PM

[twitee:]

It is guaranteed that we will surpass the previous lows......the Goldman Criminals have to be brought to justice.....AIG (Government) need to stop throwing trillions at European and American Zombie banks....only then we have reached the bottom.....

There are 500 trillion derivatives outstanding as of 2006 data. It went much higher during 2007 and 2008.......the total world output is only 50 trillion as of 2006. No single government or country can absorb it........American Tax payers for generations will have to pay for the financial terrorists greed….who will bail out the American people? Obama? Paulson or Githner? The paper money is worthless……..

Apr 02 05:21 PM

[twitee:]

Derivatives and credit swaps should be illegal...as it was in 1998...This is nothing but a 24 casino operation at the expense of the tax payer....I rather go back to the stone age if this is the modern day.....people are tired of sophisticated slavery....

Apr 02 05:39 PM

[dieuwer:]

On Apr 02 05:33 PM Cetin Hakimoglu wrote:

> These derivatives are sustainable though because they are based on
> solid underlying assets of which the underlying value is well established.


HAHAHAHAHAHA!

Are you a comedian, Cetin?

Apr 02 06:16 PM

[Fighting Yoda:]

Irrational exuberance will quickly end with the job numbers tomorrow. We have seen this madness several times recently.

To quote Nouriel Roubini today: “we've already had six bear market rallies and, despite the "prediction" of stock prices, not a single economic recovery…. see the light at the end of the tunnel sometime next year...”

Apr 02 06:39 PM

[jadziasman:]

I decided to sell all my stock in my 401K today after a slight gain from the Nov 08 low. It's not much, but I work in the auto industry in metro Detroit and I cannot risk losing any money I might need soon. Can't get any equity out of my home - never did so or wanted to before and sure can't now. The Detroit area Case-Shiller real estate price index just hit 77.8 - January 2000 = 100. Prices are back to what they were when Slick Willy was finishing up his first term.

I agree with the prediction of 450-550 S&P. There's just too much uncertainty with commercial real estate, Alt A and option ARMs, consumer and government debt and the "managed" bankruptcies of GM and Chrysler. It won't take much bad news to make the market plummet again.

Once the S&P does hit 500, I'll get the chance to ride the next bear rally. When will the S&P hit its next new high? Oh, 2015 or thereabouts.

Apr 02 07:11 PM

[VP of Commo...:]

I think GM or Chrysler going bankrupt is priced into equities at this point. Honestly, I would be very suprised if both exist by the end of the year. A black swan is defined as a significant event that few or none are expecting. A GM bankruptcy is anything but a black swan.

Apr 02 07:37 PM

[Marcap:]

Bear Market Over? Not even close! I suspect that what we have seen this past week or so is just another desperate move by some to try and create a bottom where no bottom exists. The result is just another short rally and not the beginning of a bull run. We've been down this road before. And like prior rallies, this current rally sadly will end very soon, as markets once again resume their downward spiral as more bad news, such as unemployment numbers, bankruptcies, etc. hits the airwaves. Unfortunately the light that some see at the end of the tunnel is merely an oncoming freight train.

Apr 02 08:01 PM

[dieuwer:]

Do you work for JPM?


On Apr 02 08:56 PM Cetin Hakimoglu wrote:

> Not only is the truth stranger than fiction, it's also funnier.<br/>

Apr 02 09:27 PM

[Tetrapod:]

I believe that what we are seeing is a liquidity shock hitting the system. We don't feel it yet in the trenches, but it's being felt by the financials and starting to be felt by the industrials, like a shot of adrenaline.

This is not like the other bear rallys, though it IS a bear rally. I agree with the assesment that we are far from being out of the woods, but don't underestimate the power of trillions in stumulative liquidity. It will certainly wake up the economy! But when the adrenaline wears off, as it always does, what will we do then?

Apr 02 10:12 PM

[untrusting ...:]

Cetin, one can only hope you are right, but I sure would not bet the farm on it. Stocks were so cheap back at the last low that I personally brought GE, DOW, INTC, and some others. But I have also taken profits on about half and will let the other half ride with protective stop losses. Nobody knows whether the market will continue up or rocket back down again. Noboby and certainly not these media pundits. There is probably at least a 50+% chance that the market will retest lows yet again, so at least protect yourself against that possibility. There is still plenty of negative stuff out there including probably the next quarterly reports, big loan losses, declining GDP, etc. While I do hope we continue to rally some more, it certainly is far from certain. Now if you can hold for the next 5-10 years it probably doesn't make as much difference, but if your time horizon is shorter than that...then your risk is very high.

Apr 02 10:33 PM

[Bhakta:]

There is not one iota of real positive economic news anywhere on the earth planet right now. Just spoke to the CEO of a large German privately owned company and he said out of 100 friends, 60 have lost their jobs... Thailand where I live, the situation is horrible.. Every day I just stare in amazement as one business after another shuts its doors and the for sale and for rent signs appear on their former premises. This Bear Market is not over; this is a gigantic sucker rally instigated by Goldman and Assoc to rape whoever is still standing.

Apr 02 10:44 PM

[mlonz:]

The car companies going bankrupt would be a big positive for the market first, allowing investors to move forward, and second, finally embracing an outcome brought on by free market ideals.

Apr 02 10:47 PM

[Dr. O:]

You don't have to call "the" bottom. We've rallied 25% off a bottom, liquidity is high, interest rates are low, and the market is ignoring bad news. May as well make some money.

Apr 02 11:39 PM

[wise:]

Yes we have been sellers of gold, please give us great bids for our remaining gold stocks. Gold is an answer for market troubles, but only a little answer.

Apr 02 11:39 PM

[Eric in IL:]

Let's face it, this is all a big house of cards. Don't get me wrong, I'm a bull, not a bear. At some point it makes no sense to put value on anything that you can't eat, wear, or live in. What makes gold have value? Nothing, other than your own belief. What makes paper currency have value? Nothing, other than your belief in a government. Who is going to pay you if you buy puts on the Dow and it goes to Zero? No one, because if the Dow goes to zero, then we return to hunting and gathering. I mean, when you step back and really think about making a living on the stock market, it is really funny. Your only value is that you contribute to the function of a big confidence game.
Now seriously, I think Roubini and Taleb have had their day in the sun. I do not intend to chase them down the black hole. Although, I would argue that Taleb's black swan now should be Dow 14000, because it is the exact opposite of where we are right now. And I think he would agree.
And as I have said a lot on this site, buy Platinum instead of Gold. Platinum will outperform Gold this year.

Apr 03 02:53 AM

[NoFiatMoney:]

Last minimum value of S&P500 PE ratio: 6.5 (june,1982)
S&P500 EPS (average 10Yrs)=57
Margin of safety=1.3
Estimated PE ratio=1.3x6.5=8.5
Minimum estimated value of S&P500:
8.5x57=485
S&P500/GOLD 2Q 1982=0.3
Estimated god price:
485/0.3=1615 $/oz.



On Apr 02 07:11 PM jadziasman wrote:

> I decided to sell all my stock in my 401K today after a slight gain
> from the Nov 08 low. It's not much, but I work in the auto industry
> in metro Detroit and I cannot risk losing any money I might need
> soon. Can't get any equity out of my home - never did so or wanted
> to before and sure can't now. The Detroit area Case-Shiller real
> estate price index just hit 77.8 - January 2000 = 100. Prices are
> back to what they were when Slick Willy was finishing up his first
> term.
>
> I agree with the prediction of 450-550 S&amp;P. There's just too
> much uncertainty with commercial real estate, Alt A and option ARMs,
> consumer and government debt and the "managed" bankruptcies of GM
> and Chrysler. It won't take much bad news to make the market plummet
> again.
>
> Once the S&amp;P does hit 500, I'll get the chance to ride the next
> bear rally. When will the S&amp;P hit its next new high? Oh, 2015
> or thereabouts.

Apr 03 04:29 AM

[Andy Abraham:]

How about...lets not predict... but look on rate of change basis or relative strength.. buy strength ...sell weakness ..but only with low risk trades...


On Apr 03 02:53 AM Eric in IL wrote:

> Let's face it, this is all a big house of cards. Don't get me wrong,
> I'm a bull, not a bear. At some point it makes no sense to put value
> on anything that you can't eat, wear, or live in. What makes gold
> have value? Nothing, other than your own belief. What makes paper
> currency have value? Nothing, other than your belief in a government.
> Who is going to pay you if you buy puts on the Dow and it goes to
> Zero? No one, because if the Dow goes to zero, then we return to
> hunting and gathering. I mean, when you step back and really think
> about making a living on the stock market, it is really funny. Your
> only value is that you contribute to the function of a big confidence
> game.
> Now seriously, I think Roubini and Taleb have had their day in the
> sun. I do not intend to chase them down the black hole. Although,
> I would argue that Taleb's black swan now should be Dow 14000, because
> it is the exact opposite of where we are right now. And I think
> he would agree.
> And as I have said a lot on this site, buy Platinum instead of Gold.
> Platinum will outperform Gold this year.

Apr 03 05:34 AM

[Roger Knights:]

I think the market is going to turn on its heel today and head right back down again, never closing above 8000.

Apr 03 06:05 AM

[O-B-WON:]

Classic

"Dead Cat Bounce"

Apr 03 06:45 AM

[Obi-Wan:]

Hey, like that name O-B.....

If unemployment hits 10%, all bets are off. Consumers have to get back to driving this economy, and can't if they have no wages.....

Apr 03 09:19 AM

[HChang:]

Agree 100%. Unemployment is key data and it's increasing and still far away from the 10% prediction from IMF and World Bank. With increasing unemployment and raising saving rate from 0 to 4%, who's buying and spending,.....very few.
Printing more money is just creating the next bubble and the next burst will be even more severe.

Apr 03 10:55 AM

[tallguy:]

Good article Andy, and Obi-Wan nailed it.

Banking and real estate finance can't possibly sustain a market, as we have outsourced our jobs continuously and cut our manufacturing base, we have set the stage for the future.

The only way out of this mess that is sustainable is real job creation, not gov jobs, but real manufacturing jobs.

By the way, unemployment is already way over 10 percent, business owners who have lost their businesses, any contract labor, any consultant or 1099 filing previously working person does not show up in the unemployment numbers, only those who have a w-2 get that honor.

Eric in IL gets it, shuffling money around in banking and stocks can't sustain the world, and again, I repeat myself as none of the talking heads on TV or the rest of the media mention this other than in passing, real job creation is the ONLY sustainable way to fix this mess long term. It is called production.

Oh, and abolish the FED, the biggest scam in the history of the world.

Apr 03 11:29 AM

[Fighting Yoda:]

Gold would deflate too, time to lighten up.


On Apr 02 11:39 PM wise wrote:

> Yes we have been sellers of gold, please give us great bids for our
> remaining gold stocks. Gold is an answer for market troubles, but
> only a little answer.

Apr 03 01:56 PM

[ain't no fo...:]

Marty Zweig also attributed much MORE SIGNIFICANCE to 9 to 1 UP VOLUME days than he did to down volume days in that same book you quoted... he saw less correlation to market trends with the down volume days.

And as you may also remember he said DOUBLE 9 to 1 up volume days in quick succession were a pure screaming raging buys.

Apr 03 02:09 PM

[schlumpf:]

GM or Chrysler are going bankrupt?
They dont.
Its only the bluff in the poker game.

Apr 04 04:36 PM

[LKofScotland:]

Clearly the Bear has not turned. There has been the proverbial "damage." The technical term is "a train wreck." Papering over it does not solve the problem--this requires actual physical and industrial labor which takes time. Hence the term "crisis of confidence," for the bulls--as if the problem is merely psychological. Stock prices may very well hold the line as all business models are on the line in this recession--but don't think the government is making anything better by going on its greatest spending binge in peacetime history. This is money that will not be seen again and has already lead to social unrest and politically motivated violence. The "good news" would be if "it" attacked the leadership of the nation--I highly doubt investors will be so lucky, though. Expect more blow-ups as your government tries to "fix things."

Apr 04 08:27 PM