If Market Falls on Earnings, Bottom More Likely

What is going to happen when – or we’ll concede to if – the market starts to fall on earnings? Mood will sour quickly in our view and once again we’ll hear the doomsday analysts back on the air looking for Dow 3500.

Bring it on. The more people that get scared the better the chance that we are indeed carving out a bottom. We think the next leg down within the giant trading range that began a few months ago will deflate investor psyches worse than before even though we do not see a lower low in our future.

Here is an obscure movie reference that drives home this point. Sorry, youngsters, you will have to be a real student of Hollywood to know this one.

In the 1973 movie Papillion, starring Steve McQueen and Dustin Hoffman, the main character was in a nasty prison and the powers that be wanted to break his spirit. After years of confinement, they told him he finally had a visitor, likely someone important to him. He washed, shaved and dressed in nicer prison garb after anticipating the visit for days. When he got to the meeting room they told him there never was any visitor coming – ever.

Imagine his mental state deflating like the Hindenburg. To us, this is what is going to happen during the next leg down in the market, as the economic recovery everyone thought was at hand is not to be. But like the prisoner, the market will physically be no worse than it was last month. Only its psychology will be smashed.

Comments

[Roger Knights:]

"The more people that get scared the better the chance that we are indeed carving out a bottom."

We in the US think there will always be a rebound because there's always been one so far. But that's not a real reason for thinking there will be one. There hasn't been one in Japan.

Apr 08 04:57 AM

[expat in China:]

Alpha, thank you for the education that you provide to us novice investors! I find the articles and comments most informative and feel like I am in School again. I am also happy to know that we have a class clown Cetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin Hakimoglu!

Cetin it is obvious you are all in with your family’s money and waiting for a get rich bull market to save your family from the food stamp lines.

Please let the people talk about the articles with insightful comments. I can not be the only one tired of you pumping the news to benefit your positions.

Please you have nothing really to say!

Apr 08 07:03 AM

[ain't no fo...:]

doesn't SA have an "ignore" feature for getting rid of certain commenters?


On Apr 08 07:03 AM expat in China wrote:

> Alpha, thank you for the education that you provide to us novice
> investors! I find the articles and comments most informative and
> feel like I am in School again. I am also happy to know that we
> have a class clown Cetin HakimogluCetin HakimogluCetin HakimogluCetin
> HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin
> HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin
> HakimogluCetin HakimogluCetin HakimogluCetin HakimogluCetin Hakimoglu!
>
>
> Cetin it is obvious you are all in with your family’s money and waiting
> for a get rich bull market to save your family from the food stamp
> lines.
>
> Please let the people talk about the articles with insightful comments.
> I can not be the only one tired of you pumping the news to benefit
> your positions.
>
> Please you have nothing really to say!
>

Apr 08 01:49 PM

[ozcutty2:]

Everyone is talking about one final big sell off before hitting bottom. Thats there reason for not being long now.
What if it doesn't happen? alot of people will lose alot of money by not being in. Thats how Buffett has built such a big fortune, he is always in the game. Whereas others are always trying to trade in and out trying to outsmart the market. Sure Buffet looks silly for being 40% down but in a few years he could be 100% up. Meanwhile doomsayers will still be on the sidelines saying, "its just a bear market rally, wait for the low"

Apr 08 10:01 PM