This Bear's Just About Played Out

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Includes: IJR, SLY, SPY
by: Andy Greig, CFA

Back from a bit of a vacation and I wish I had not returned. This is now a full-fledged bear market. A look at financials, small caps, and tech tells the tale.

The S&P 500 is holding up relatively well due to the large energy component and to a lesser extent the utilities and materials. I doubt that will last much longer. Now for the good news. It is almost over!

I think we really started this bear in the summer of 2007, that is when a lot of stocks just stopped working. Especially in my world of smaller-cap quant names, all heck broke loose and it is continuing. So if I take that as the beginning, I think the end of the bear for the majority of stocks is probably in the first quater of this year.

Lately bear markets have been quicker than the 12 to 18 months of times past, and given the depth of decline in many of the smaller names I think a nine month time frame is reasonable.

The earnings yield relative to treasuries should prevent much more downside. Worst case scenario is the S&P 500 trading down to 1300-1250, another 10%. Best case scenario is that we saw the low Wednesday.

I am sticking to my guns on one particular small-cap name that I think is a 50 cent dollar even though I am getting abused in it. The next few weeks should provide some great opportunities and a lot of stress.

Take it all in stride and remember when things are uniformly agreed to be terrible it is already priced into the market. Feels like we are mighty close to that right now.

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