Bull or Bear Market?

Over on Barry Ritholtz’s blog, The Big Picture, he quotes Merrill Lynch economist David Rosenberg (whose morning market commentary I read diligently):

Even more intriguing, he observed that EVERY 300 point DJIA rally has occurred ONLY during bear markets. (Even the 1998 LTCM crisis saw two single-day gains of more than 300 points, September 8 and October 15, 1998. At its intra-day lows, 1998 had a 20% decline).

This is incorrect.  The bottom in stocks at the beginning of the most recent cyclical bull occurred on October 9, 2002, when the Dow closed at 7286.  The following day, the Dow rose 248 points to 7534.  On October 11, the DJIA was up 316 points.  Two days later, it rose another 378 points.  Therefore, indeed, there are two 300-point days during bull markets.  They last occurred at the beginning of a multi-year rally. 

I do not disagree with Rosenberg and Ritholtz’s general premise – violent moves in stocks often occur during bear market rallies.  However, they also occurred at the beginning of the last cyclical bull market.

In addition, the Dow rose 270 points on March 13, 2003 and another 282 points two trading days later on March 17 as the market retested its lows, held, then doubled over the next five years.  Those were not 300-point days, but this is semantics.  Both moves were 3.6% up days, greater than the 2.9% move on Tuesday.

I do believe this is a bear market rally.  I do not believe that the market will bottom until some time next year at the least.  However, we must keep our minds open to the possibility that the market may be at a bottom, or trying to bottom.  I doubt it, but I don't know.  The huge volume on the New York Composite on the Freddie Mac (FRE)/Fannie Mae (FNM) lows, the recent unrelenting negativity and the sharp declines in commodity prices should keep investors alert for a continued move to the upside, even if it is a bear market rally.

 

Comments

[jvc33:]

Toro, your first instinct is usually your best, don't second guess yourself. This is a bear market and it has not bottomed yet. Not until the financials get all their skeletons out of the closet will we see a bottom. Massive writeoffs are yet to come from the auction rate securities that our Wall Street friends sold as investment grade yet didn't want to back anymore and are now forced to take back. They may be thieves but they are not stupid thieves. If they saw that there is risk to backing these securities and pulled support, they certainly know now there will be more losses.

2008 Aug 08 08:36 AM

[adan:]

bottom line: "...we must keep our minds open to the possibility that the market may be at a bottom, or trying to bottom. I doubt it, but I don't know."

i doubt this is "the" bottom also, but i, also, don't know

since we're not backstopped with a blank check while collecting multi-million dollar salaries (at least not me :-) - then i have to actually take responsibility, gauge my risks, and take my positions

hopefully some sudden rule change won't then take away anything i may make :-)

2008 Aug 08 09:04 AM

[investor88:]

Technical signals going forward can change in any direction for a bull or continued bear trend. If we look at the fundamental economic factors and the writings of many experts, then the way forward is most probably a continuing bear market for another year or longer.

2008 Aug 08 10:49 AM

[surgcare:]

People think that since the price of oil is falling from demand destruction ,a sign the economy is slowing down , that we're on our way to a booming economy . But wait ,if the price of oil is coming down because we're in a recession , wouldn't oil go back up if there is a recovery on the way . As long as people keep losing jobs I don't know how you can say we're in a bull market .

2008 Aug 08 02:32 PM

[ritholtz:]

On October 11, 2002, the S&P500 stood at 835. Six months later, on March 07 2003, it was 829. That's why most people mark the end of the Bear market as march 2003.

Note that SPX is are far better proxy DJIA (500 stocks versus 30)

2008 Aug 08 02:33 PM

[Toro:]

Barry

That may be, and I can certainly accept that. I mark tops and bottoms as the ultimate top and the ultimate bottom when constructing my frameworks.

Having said that, after the March bottom, the Dow rose 3.6% twice as the market bounced, which was a higher return than on Tuesday. I think its more appropriate to use percentages than point gains.

T.

2008 Aug 08 08:10 PM

[lex:]

I agree with JVC 33. Like '73-74, this is one of those bear rallies. In fact the Dow was in bear territory until 1982 (9 years later), when it began a new bull runs. There are many false alarms, (misperceived bottoms), and this is just one of them. Not to say you can't make money from bear rallies, you can if you are "lucky" enough to catch the bottom. But usually for everytime you do, you may find yourself catching a falling knife, and unless you have strict stop loss discipline, you maybe looking at a big loss. I prefer to stay on the sidelines, until the risk/reward is more favourable.

2008 Aug 09 12:48 AM

[Egg:]

Ok, guys, quit obsessing on 300 pts moves.

300 pts moves at Dow 8000 and Dow 11,000 are entirely different numbers.

Use percentages pls!

2008 Aug 09 03:12 PM