Have We Experienced a Bear Market Bottom?

A number of market commentators have been commenting on reaching a bottom in the financial markets on July 15 2008. The Street’s Jim Cramer said “I am finding disbelief that the July 15 selloff marked the bottom. Fifty percent of the people are bears, 30 percent bulls. Again, a bottom is not a new bull market. A bottom is what we won't take out. I think we won't take out the July 15 low.”

Although the easiest way to pick a bear market bottom is with hindsight, I thought I would add to the debate by reviewing some empirical data. On 15 July, we saw a top in crude oil which has fallen 21.7 percent, an 18 percent drop in gold, 6.5 percent rise in the US dollar index, a rise of 6.8 percent in the Dow Jones Industrial Average and 7.7 percent jump in the S&P 500 (August 13 close).

Twenty six of the thirty stocks in the Dow Jones Industrial Average have all risen since 15 July and even with the doom and gloom of the financial sector with their multi-billion dollar write-offs and negative profit forecasts have still managed to rally, some quite impressively, (refer to table below). There still appears to be considerable volatility.

Still, this volatility has not stopped the market from making higher highs.

Whether the US economy is starting to improve or will there be further downside in the housing market is yet to be determined. Furthermore, I and any other market commentator can only speculate on whether we have seen a bottom, but if the current rally continues to make higher highs will only further validate the assumption that we have experienced a low in the bear market. From the Dow Jones’s current level of 11659.00 there would need to be a retracement of over 800 points to create a new low.

Disclosure: None

Comments

[Alan the Tr...:]

You're using the term "higher high" incorrectly. You can't have a higher high until you have a higher low.We don't have a higher low yet. Also your posted percentages might trigger positive emotions but they mean nothing because they're taken out of context, i.e. the decline that came beforehand, i.e May into July. Selective numerology...

2008 Aug 17 04:43 PM

[Larry House:]

You haven't added to the debate.

2008 Aug 17 07:00 PM

[mouse:]

The most fun one gets from a bear market (having been 100% in cash since July 21, 2007) is watching all the hopeful people continuing to delude themselves that the worst is over. It ain't.

2008 Aug 18 02:17 PM

[leh:]

Like LarryH, I'll raise a lower cheek to this piece and give the author a two raspberry rating, especially with the notoriously bearish month of October ahead of us and FRE and FNM on the ropes. We've already seen Act l (Bear Stearns) and Act ll (the Mac triplets--FRE, FNM, and Indy--going down); something tells me there's at least one more major act in the wings.

leh

2008 Aug 18 04:32 PM

[User 245119:]

There is some interesting comments. I think there is too much uncertainty to assume we have seen a bottom. In periods of uncertainty people base their decision on past experience or perception. The problem with perception is that it often distorts reality. A month ago, all you needed was for someone to sneeze in Iran and the price of oil would jump. Recently we have had geopolitical tension between Russia and Georgia and weather threatening the Gulf of Mexico yet this had no reaction on the price of oil, in fact, I believe oil even went lower (how perception changes). There most probably will be an Act III as referenced by Leh, but will this have a large impact on the market if it has already been factored in as surprises move markets move then expectations.

All things considered, we play an uncertain game and looking forward the market will have to take out 1201 (S&P 500) and 10827.71 (DJIA) to see further downside.

Thanks for the two raspberry rating.

John

2008 Aug 18 07:42 PM

[Steven Hansen:]

it is always interesting to me when an author gives you data, and comments disagree but provide no data.

2008 Aug 19 04:22 AM