Bear Market Bottom

[New-born baby]

Do you lay awake at night, wondering, "When will this Bear Market end? When will we see a bottom?" Are your nerves so shattered by this market that you cannot get food from the plate to your open mouth with a fork because of uncontrollable shaking? Are your eyes as bloodshot red as your portfolio? Has the black hole that is this market sucked your eyes deeper and deeper into your head as your losses mount?

If so, I have real help for you. IT is "the bottom identifier!" And I'll tell you again, as I have told you before, the bottom ain't gonna be until around June, 2010. But if you want a more scientific analysis, here it is:

http://www.stocktiming.com/Wednesday-DailyMarketUpdate.htm

[mimo_100]

Here is "Perma-Bear's" Opinion: (he says we are at the bottom now!)

http://biz.yahoo.com/barrons/081103/sb122549293587789385_id.html


STEVE LEUTHOLD HAS SEEN A THING OR TWO in his nearly five decades in the investment business, from the roaring bull market of the 1960s to the current liquidity crisis. As chairman and chief investment officer of The Leuthold Group

[New-born baby]

Here is "Perma-Bear's" Opinion: (he says we are at the bottom now!)

http://biz.yahoo.com/barrons/081103/sb122549293587789385_id.html


STEVE LEUTHOLD HAS SEEN A THING OR TWO in his nearly five decades in the investment business, from the roaring bull market of the 1960s to the current liquidity crisis. As chairman and chief investment officer of The Leuthold Group


Here's a quote from the PermaBear in that article:
A reporter asks him, "In a recent research note, you wrote: "I remain bullish and wrong." Is that still your sentiment?" The PermaBear answers, "Yes, it is."

Bullish and wrong, he says. I agree!

Well, I hope I am wrong and that we are at the bottom. I don't see it that way at all.

[New-born baby]

MM, your comments, please.

The October 2008 Job Report: Digging Deeper into the Data. True Unemployment Rate at 11.8%.


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Trying to explain the unemployment rate is a challenge since there are many nuances to look out for. For example, today the unemployment rate came out at 6.5%, the highest since March of 1994. That would be troubling in itself. What was also released in the report is a horrible number of 240,000 jobs being lost in October. Probably more surprising is the September employment number was revised to show a 284,000 job loss. What does this amount to? 1.179 million jobs have been lost since the start of 2008. It has been a very challenging year on the jobs front.

In this article we’ll try to breakdown some of the details in the job report since it may be confusing to many. I will also argue that the true unemployment rate is more likely to be near 11.8%.

First let, us take a look at the exponential jump in the unemployment rate:



From this chart it is pretty clear how quickly the employment situation has deteriorated. Much of this has to do with housing and the credit crisis and areas like California housing that are simply having the worst housing decline in recent memory. The above chart doesn’t show the entire picture however. Let us expand the chart out to 1990:



The above chart does a better job showing the current employment situation in perspective. We have the early 90s recession and also the early recession this decade. The troubling thing about unemployment is that the rate doesn’t peak for a few years after a recession has started. Let us take a look at this with data from the Federal Reserve showing recessions:



Click here to enlarge | Open in another window


Recession

Early 1980s recession: July 1981 - November 1982

Recession of the early 1990s: 1990-91

Early 2000s recession: 2001-2003

Peak Unemployment

Early 1980s recession: Peak hit on February 1983 at 10.4%

Recession of the early 1990s: Peak hit on June 1993 at 7.8%

Early 2000s recession: Peak hit on June 2003 at 6.3%

Using the above as a guideline, we get a pretty reliable range of approximately 2 years from when the recession begins, to where peak unemployment is hit. The third quarter GDP was our first official contraction although it was slight. So we can mark the start of the “official” recession on July of 2008. Meaning, we can expect peak unemployment to hit sometime in the summer of 2010 if the last three recessional patterns hold up.

Again, this recession by all estimates will be more painful and more prolonged so it is hard to say if the above will hold true. If we go back to the Great Depression, that contraction lasted a painful 10 years from 1929 to 1939. If you think that was long you should consider the Long Depression of 1873 - 1896. A 23 year contraction.

Let us now look at a chart in the employment report which I believe reflects a better view of the real unemployment rate. A-12 shows various ways of measuring employment. I believe that U-6 in the table is a much better reflection of the country’s employment scene:



Click here to enlarge | Open in another window


Now why is this a better measure. It includes “marginally attached workers” who are people that are looking (or not looking) for work but want to work. You can consider this batch the discouraged worker subset. In addition, the number of part time workers has been growing. So looking at the difference between U-3 which is reported by the median and U-6 we get a large difference. One is 6.5% and the other pushes the number up to 11.8%. That is why it feels much worse than a 6.5% environment. I think most people would agree that someone who wants work but has given up searching should be considered unemployed. Then in this subset, you have those looking for work but not stating why but this may be someone working a few hours at a job but in reality is looking for full-time employment. They too should be considered. The 11.8% number is stunning and incredibly high. Remember at the height of the Great Depression the unemployment rate hit 25%:



The above pattern also holds out for the Great Depression. The actual business contraction cycle peaked in August of 1929 and didn’t hit trough until March of 1933. The market hit a peak in September of 1929 but we are referring more to the business cycle. As you can see from the chart, the peak was hit in 1933 but in reality peak unemployment was essentially reached in 1932 which already was over 20%. So using the above model of 2 to 3 years from the start of the cycle, it also held true back then as well. Depending on the severity, the longevity of the contraction can be drawn out. As you can see from the other charts above, the 2001-03 recession quickly recovered.

As of October of 2008, 10,080,000 people are unemployed from a total 155,038,000 workforce. I wanted to dig deeper into the Great Depression data but of course it is hard to find data during this time. I did however find a 1930 Census report and here are the raw numbers:



Click here to enlarge | Open in another window

Very quickly we can say that the data in this chart was most likely produced in 1929 which would have had the favorable unemployment rate of roughly 5%. But let us take that actual workforce and we can then get a figure of the actual number of unemployed during that time:

1930 Workforce: 48,832,859

1930 unemployed: 2,429,062

5% rate

If we use the 25% peak reached in 1933, we can say that 12,208,214 people were out of work during the Great Depression. That should put that 10,080,000 number in perspective. Keep in mind our employment base is now 3 times as big but just thinking that we have nearly as many people unemployed since the Great Depression is a sobering fact.

So when you dig into the employment report, you will find some fascinating data that goes beyond the actual mainstream number reported. Given the history of past recessions, we can expect the employment situation to deteriorate at least until the summer of 2010.

[Websman]

The bottom ain't here yet... The Inner Circle will inform you when it is.

[Peter Hansen]

NB "Chris Weber" is a stock market genius , he has made so much money from his investments, that he's never had a real job, and supposedly .........HE HAS NEVER BEEN WRONG ON A MAJOR MARKET CALL!

Before Jumping in to the market now .......Please read this with an open mind .
http://www.dailywealth.com/archive/2008/nov/2008_nov_06.asp?printdoc=print

[New-born baby]

NB "Chris Weber" is a stock market genius , he has made so much money from his investments, that he's never had a real job, and supposedly .........HE HAS NEVER BEEN WRONG ON A MAJOR MARKET CALL!

Before Jumping in to the market now .......Please read this with an open mind .
http://www.dailywealth.com/archive/2008/nov/2008_nov_06.asp?printdoc=print

"Made so much from his investments" & "Never had a real job." Sounds just like Peanuts. lol
I can't get the Peanut to answer my post. What's he doing, take a vacation in Hiawaii?

[Peter Hansen]

Al Thomas another market analyst expresses his view.......He is selling a book , BUT at the end of this missive you can subscribe to his newsletter FREE for 3 months ....no credit card required......MUSIC TO MY EARS !






"THE ALCHEMIST by AL THOMAS

FINDING A WINNING STOCK

….. or Mutual Fund or Exchange Traded Fund in a major bear market.

You don’t believe this is a major bear. Well, you are in for an expensive

lesson. All the “experts” on TV and the radio and the pretty cheerleaders on

TV all seem to think we are at a “bottom”. It’s time buy.

Let’s see now. How many times have they declared a “bottom”? Gosh,

it’s so many I can’t count. We are at another one now? At least that is what

they are saying – again.

The investor that has any money left in his account. Stop. Don’t say

that. OK, the investor that has seen his 401K or personal account drop by 30%

or more since the first of the year understands what a bear market is. What he

wants to know now is will it come back and when will it do so.

All of the mavens tell different stories. Almost all of them contain the

caveat “for the long haul”. Let me translate that. It means “I don’t have a

clue”. The professionals are as baffled by this long-clawed bear as the

novices.

Again almost everyone of them says not to sell because we have been

down for XX numbers of months or XX percent of decline or the market is

‘oversold’ and always rallies back or the stocks are so cheap buyers will be

coming in or there is huge amounts of money on the sidelines waiting to

invest or some other bit of nonsense.

The only rejoinder I can come up with is: Well why isn’t going up?

The straight answer might seem a little silly. Because there are more

sellers than buyers.

There and several big reasons why the market cannot advance. Major

economies of almost every country in the world are suffering from too much

unused manufacturing capacity, inability to borrow because banks have just

about stopped lending and consumers have quit consuming at former

prodigious rates.

What are the odds of finding that winning stock?

Let’s say the investor wants to buy now and hold for a year. History

tells him the chances of buying a stock that will gain 100% or more are about

2% in a normal market. If he is a true Buy N Holder his chances are close to

zero in a long term bear market. From the high of 1929 it took 25 years to

come back up.

Every broker will tell you that you cannot time the market. They are

wrong. If they knew their business they would have had investors in cash

months ago. Find a broker who has an exit strategy. If you can’t you must

protect your own money by having the fund manager transfer to a money

market account – today!!

Am I discouraging you from holding anything but cash in your account

until the bear truly ends? I hope so. History backed up by today’s

fundamentals tells a clear story that we have several more YEARS of the

bear with which to contend.

Cash is king.

You may receive Al Thomas’ investment letter at no charge for 3 months on
the web site www.mutualfundmagic.com Never lose money in the stock
market again. His book “IF IT DOESN’T GO UP, DON’T BUY IT!” has become
a classic."

[mimo_100]

I just received a newsletter regarding the DJIA and recession. The author went back to 1895 and measured 33 recessions. The average, in terms of the DJIA, was down 36.4% and this happened over 363 days. There were 4 instances much longer. 1901, 1912, 1919 and 1946. The recession lasted 875, 821, 660, and 1112 days respectively. If you measure starting at the DJIA peak on 10/11/2007, we have already been down over 390 days.

Assuming history repeats itself, we are probably at least 33% of the way through this recession, and more likely 50%. If the market leads the economy, then we are close to the bottom of this cycle. Lots of assumptions here!

[Peter Hansen]

I just received a newsletter regarding the DJIA and recession. The author went back to 1895 and measured 33 recessions. The average, in terms of the DJIA, was down 36.4% and this happened over 363 days. There were 4 instances much longer. 1901, 1912, 1919 and 1946. The recession lasted 875, 821, 660, and 1112 days respectively. If you measure starting at the DJIA peak on 10/11/2007, we have already been down over 390 days.

Assuming history repeats itself, we are probably at least 33% of the way through this recession, and more likely 50%. If the market leads the economy, then we are close to the bottom of this cycle. Lots of assumptions here!


Momo thanx for anothr great analysis run! Going LONG now would be akin to committing Hari Kari LOL!

[New-born baby]

I just received a newsletter regarding the DJIA and recession. The author went back to 1895 and measured 33 recessions. The average, in terms of the DJIA, was down 36.4% and this happened over 363 days. There were 4 instances much longer. 1901, 1912, 1919 and 1946. The recession lasted 875, 821, 660, and 1112 days respectively. If you measure starting at the DJIA peak on 10/11/2007, we have already been down over 390 days.

Assuming history repeats itself, we are probably at least 33% of the way through this recession, and more likely 50%. If the market leads the economy, then we are close to the bottom of this cycle. Lots of assumptions here!

The panic of 1873--a banking panic--lasted 23 years, until 1896.

[mimo_100]

The panic of 1873--a banking panic--lasted 23 years, until 1896.

Dow Jones published its first "Industrial" average (DJIA) consisting of 12 stocks closing at 40.94. on May 26, 1896. If you can find some way of measuring the market prior to this, please post it.

[New-born baby]

Dow Jones published its first "Industrial" average (DJIA) consisting of 12 stocks closing at 40.94. on May 26, 1896. If you can find some way of measuring the market prior to this, please post it.


I don't know of one, but MM has the real business education. He ought to have an answer.

[ninner]

hey NB i dont think this is a bottom yet either....infact i bought some jan 30 puts today for SWN what do u think??

[mrmarket]

I don't know of one, but MM has the real business education. He ought to have an answer.

Yes..we learn from history, but the world is a lot different now and so are the people. I'm not sure the mean reversion applies anymore.

[Peter Hansen]

Some say the Dow will hit 7200......but I guess no one knows.....anyone know a good psychic ? LOL

[jiesen]

Yes..we learn from history, but the world is a lot different now and so are the people. I'm not sure the mean reversion applies anymore.

But when we don't learn from history, it does repeat. And fewer people these days are learning anything, let alone history...

[MEA_1956]

It's hard to find a person who can read a tape measure now days.

[New-born baby]

Some say the Dow will hit 7200......but I guess no one knows.....anyone know a good psychic ? LOL

I've got the DOW at 6000. S&P may bottom around . . . 450!

[New-born baby]

But when we don't learn from history, it does repeat. And fewer people these days are learning anything, let alone history...
Jiesen, You're a genius!

[New-born baby]

It's hard to find a person who can read a tape measure now days.

Sadly, it is very true.

[New-born baby]

hey NB i dont think this is a bottom yet either....infact i bought some jan 30 puts today for SWN what do u think??


WE may get a bounce in the market for December. You know, the Santa Claus effect.
SWN: $25 likely; $20 possible.

[New-born baby]

Watch the DOW chart. Folks, let me be blunt. If the Dow breaks 8,000, we are in trouble for the short term (in my opinion)looking for 6,000. Dow support at 8,000 is EXTREMELY important. Not only is it a proven level of support, it's a major psychological barrier for the market.
Take a look at the 60 day chart of the Dow Jones Industrial Average below...
As you can see, 8,000 has been tested twice already. On both occasions, the price action dipped just below 8,000 support, but quickly rebounded and rallied higher. That's normal...there's nothing to worry about as long as the price rebounds quickly intraday after dipping through the support level. Now, if we see a close below 8,000 then you may want to start worrying about your short term long positions.
http://img148.imageshack.us/img148/3856/indunp8.png (http://imageshack.us)
http://img148.imageshack.us/img148/indunp8.png/1/w460.png (http://g.imageshack.us/img148/indunp8.png/1/)
Furthermore, 8,250 is a major support level in the Dow as well. Keep an eye on price action there if the Dow tests it again.

More importantly, watch very closely if the Dow tests 8,000 again. I'll be ready to short stocks and sell call spreads if I see a clear break. You may want to consider doing the same.

Post some short possibilities on this thread.

[ninner]

im a bear until i see otherwise and my short is SWN...and the last few days tells the story...its building cause to get down to the 24 level and if it has volume there its going lower ...i still think that 19.05 level has to be retested and if volume is light there then it may be a good place to buy