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Walter Deemer: cyclical bull, secular bear market?

Posted By Barry Ritholtz On February 23, 2004 @ 6:36 am In Finance | Comments Disabled


Technician Walter Deemer is the focus of a terrific interview [1] in Barron’s this week. Deemer hits the nail on the head in his explanations as to why this is such a challenging environment. (I’ll post a few other excerpts later this week).

Here’s Deemer’s explanation of the cyclical bull, secular bear market:

“The easy part of the cyclical bull market that began either in October 2002 or March 2003, when the market tested the October lows, is just about over, and life gets tougher from here on in. It doesn’t mean the bull market is over.

People in 2002 and early 2003 were jumping all over the concept that this was a secular bear market. Defined by me, at least, a secular bear market is one in which a major low is lower than a prior low and a major high is lower than the prior high. In other words a lower low and a lower high. Quite obviously, we are getting that in the Nasdaq because in round numbers it topped out at 5000, went down to 1100, which was lower than the 1998 low, and most people probably would agree it is not going to get back to 5000, and that’s the prior high. The Nasdaq is in a secular bear market. But mid-caps and small-caps just made all-time highs, and by definition new all-time highs are not made in secular bear markets.

The S&P is betwixt and between. The Dow Jones Industrials is a little less betwixt and between, because it is more a mirror of the real world and so it is closer to its old high. I’ve been calling this a secular non-bull market. It is going to be tough for the S&P to get above its 2000 high. So by definition it can’t be a bull market. But the secular-bear-market argument means the S&P has to go down and break the 2002 low, and that is anything but a foregone conclusion. To call this a secular bear market may be a little bit too harsh. When somebody says ‘secular bear market,’ it kind of implies you don’t want to be in any stocks anywhere for any reason. The market that we have been in and the market that I believe we are likely to be in for the next 10 years is going to have places that will do well and places that will not do well.”

Great take on the complexities of these trifurcated markets: The Nasdaq is rallying within the framework of a broader entrenched bear market, while the Dow is only 12% below its highs. At the same time, small caps are at all time highs.

Trend Spotter: An Interview With Walter Deemer [1]
Nasdaq, which has been pacing the current bull run, is poised to tumble, says technician
Barron’s, MONDAY, FEBRUARY 23, 2004 


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[1] interview: http://online.wsj.com/barrons/article/0,,SB107732303981035500,00.html

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