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400 POINT DOWN DAYS NOT NEGATIVE EVENTS FOR MARKET

David Rosenberg, the perpetually bearish analyst was quoted on Bloomberg yesterday that “90% of 400 point declines, since 1987, have taken place in bear markets.” As the table below indicates the net result 20 market days later was zero. It looks like data mining to me.

I also object to using the nominal decline rather than a percentage number, such as 3%. This use of the nominal number in economic series results in exaggerating the most recent data.
                                                    
 
DJII
20 DAY%
1987.10.19
1738
12.1
1997.10.27
7161
8.5
1998.08.31
7539
7.2
2000.04.14
10305
4.9
2001.03.12
10208
-3.6
2001.09.17
8920
4.8
2007.02.27
12216
1.5
2008.09.15
10917
-14.0
2008.09.17
10609
-19.1
2008.09.29
10365
-21.1
2008.10.07
9447
1.9
2008.10.09
8579
1.4
2008.10.15
8577
-3.4
2008.10.22
8519
-6.1
2008.11.05
9139
-8.3
2008.11.06
8695
-0.7
2008.11.12
8282
3.4
2008.11.19
7997
7.6
2008.11.20
7552
13.6
2008.12.01
8149
6.4
2011.08.04
11383
2011.08.08
10809
2011.08.10
10719
2011.08.18
10989
 
 
I have also run the data for a 50 day market period and with the same result- zero.

The Rosenberg claim is based on the few days in 2011.08 and the negative market action which followed. Without those days the results would be positive for buying the market following large down days.

Every long term indicator of market performance (12 months into the future) is signaling double digit upside returns. Money supply in 2008.08 was running at a 12 month growth rate of 2%. Since zero growth is the lowest decile over the last 40 years money growth was tight.

Currently money growth is 20%. My research indicates that all of the long term profits in the stock market are made during periods of market chaos. That means periods where the central bank is increasing money at double digit rates. This is a top decile event. They would only engage in this action if they saw the economy and the market not responding to more moderate policies.

My research indicates that monetary policy is transmitted, to what the public and the media define as the real economy, through the financial markets. This is a March, 2009 moment and the stock market will explode to the upside.

Just as in 2009, you wanted to overweight the sectors that had been slaughtered. Here you want to overweight financials.