Mr. Bull, Meet Mr. Bear
May 17, 2004
I have been trying to resist heralding the return of the bear market because over the past year or more such bold statements have invited massive rallies in the market. Well, you have me to thank if we finally get a decent bounce here. In reviewing the charts, I am simply struck by how over-extended all this selling seems to be. I am even more struck by how convincing Mr. Bear has made his case. More and more major indices are failing the test of the 200 daily moving average in price. The Dow Industrials finally accomplished what the Nasdaq already has - a wicked and convincing close below that oh so important Maginot Line of the stock market. Only the S&P 500 stubbornly remains above this support. It is increasingly clear that the bull market of 2003 was not secular, but cyclical. It was a rally in the middle of a larger bear market. Mr. Bull - get reacquainted with your old friend Mr. Bear. All the ruckus going on in this country and around the globe has finally stirred him awake!
A little over a week ago I was finally compelled to summarize just how bad things looked because few people seemed to notice (or WANT to notice!). Now some of you must be wondering what a poor bull has to look forward to. Well, I strongly suspect that all this recent vicious, panicked selling is a precursor to some sort of sharp and swift rally. But it will be the classic kind of bear rally that punctuates the persistent pessimism of the bear with a shot of hopeful adrenaline - sucking in just enough money to destroy more wealth on the way down. It will take a while for investors and traders to let go of the fantasy world that was 2003, a time of glory when almost anything and everything went up. As that process unwinds, we should see many rallies that get people excited and the juices flowing and the renewed declarations of conviction that the American economy is unstoppable again. We may even end up printing out a wicked and volatile trading range with only a subtle overall downtrend. I will reiterate…look to sell each and every rally. Last year punished sellers, this year (and beyond) will reward them.
Be careful out there!