Is the worst of the market sell off over?

If we look at long term charts of prior collapses, it appears there is lots of upside to go.

I am less convinced that there is nothing but smooth sailing ahead. For markets to continue to rally, we likely need to avoid a major collapse in Europe, sidestep a recession in the US, and see some job creation and wage improvement here that can translate into improvement in retail, auto and home sales.

As of today, I remain dubious of that as an immediate outcome.

Still, the breakout last week above the 3 month trading range at ~1220-25 last week suggests some more upside from here, assuming the new trading range sticks. The playbook calls for a pullback and test of the breakout — traditionally, making for a great entry point — and if that test successful, the next leg up should then begin.

Hence, your posture is dramatically impacted by your time frame. If you are looking out 1-3 months, you are probably bullish. If your outlook is measured in 6-12 months, you might be less sanguine.  And the time between is anyone’s guess . . .

Here is what Doug Short called the “4 Bad Bears”:

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Click to enlarge chart:

Source: Advisor Perspectives

Category: Markets, Technical Analysis, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

33 Responses to “Is the Worst of the Bear Market Behind Us?”

  1. Chad says:

    The scary part is actually how little it fell compared to ’73 and ’00, and how much further we had to fall to get to ’29. This seems to have more in common with ’29 in terms of the size of the problems. The problems in ’00 and ’73 seem much less serve than the current issues.

  2. Chad says:

    serve = severe

  3. PDS says:

    BR….as typified in your comment above…ie is or isn’t the bear market over?…you say maybe…but maybe not depending on your time time horizong?….to which I say, .equivocation has become standard operating procedure for money managers…hence the general return underperformance and lack of value added to clients in the industry….

  4. rd says:

    Please keep in mind that the 1973 bear was the middle bear from 1966 to 1982.

    Investors were slaughtered on an inflation-adjusted basis by mid-1982, although high dividend yields did help cushion the blow as in the 1930s. We do not have that investing assistance this time around.

    We are currently observing the most concerted and determined central bank and government intervention in the markets in the history of reasonably free markets, certainly since currencies began being unpegged from gold. The number 1, 2, and 3 questions from investors is “Will they be successful at engineering a series of soft landings or will we crash at sea with nobody left to help?”

  5. Greg0658 says:

    and a goldilocks colored line would be the wash rinse repeat of likeWWII .. since everybody thinks the dollar is the least ugly girl @dance and hense will be the future sole survivor (I dont believe that bunk) I think China has the right stuff now …. america the melting pot of all the world with its gated bases (umm – bunkie)

  6. MayorQuimby says:

    I like a gap fill up to the 1260 – 1285 area and then roll down at year end. I give the new high scenario a low probability – maybe 20 percent. I also think there is still too much bearishness. I want to short when people feel like it is ALL over with and we are literally in the clear. I suspect that is not going to happen for years so we might just be in a trading range for a long time. My best guess is gap fill to 1280ish then range bound between 1040 and 1280 until the spring.

  7. JimRino says:

    Hmmm…
    I’d say there’s a higher correlation to the 73 oil embargo, as high oil prices instigated this crash. Which brought the weakness in Real Estate into focus, inability to afford new housing prices.

    With the historical data provided it looks like the worst is over.
    Time to get back into the market.

  8. JimRino says:

    That’s not saying that future, higher oil prices could not do the same thing.
    With China’s growth, world population now at 7+ billion, and the oil industry NOT Diversifying into Solar, which is now cheaper then fossil fuel, we are at risk of another crash at any time.

  9. budhak0n says:

    Shhhhhhhh We’re huntin wabbits

  10. Petey Wheatstraw says:

    Recently, Smithsonian Magazine ran an historical article on the battle of Bull Run — the face off of the civil war. As had been documented many times before, by many historians, people from DC traveled to the site of the battle, with picnic baskets in tow, in order to witness, as entertainment, what they thought would be a skirmish that would send the rebels packing. One can only assume that these folks intended to return to their homes, and life as they had known it all along.

    What happened that day was transformative to them, personally, and to our nation: A ghastly battle, with much carnage, that clearly demonstrated the seriousness of the conflict between the two sides.

    Has the bear market ended?

    Grab a picnic basket (and a bucket to puke into, just in case), and we’ll see.

  11. kingcoal says:

    lots of upside on what timeline? If you are 65, you probably don’t have or want to wait another 1000 days to withdraw the money especially given the volatility.

  12. bda_guy says:

    Given the recent run-up, my indicators show that the market is currently over-stretched to the upside in the very short-term (next couple of weeks). Looking for a near-term pull-back into the mid-1100s. From there, that would be a great place to buy over the medium term (3-6 months). I’m a lot less certain and less optimistic beyond that.

  13. while some take ‘Comfort’ in nominal Price Changes..

    others may care to hew to the Relative Price..

    http://search.yippy.com/search?query=Price+nominal+v.+relative&tb=sitesearch-all&v%3Aproject=clusty

    http://www.thefreedictionary.com/hew (v. intr. #2)

  14. super_trooper says:

    Wouldn’t it be more appropriate to compare inflation adjusted charts?

  15. budhak0n says:

    http://www.youtube.com/watch?NR=1&v=bVVsDIv98TA

    It’s really all you need to know.

  16. mathman says:

    Nothing changing out in the street though:
    http://www.tomdispatch.com/post/175457/tomgram%3A_barbara_ehrenreich%2C_homeless_in_america/#more

    and more arrests of the Occupiers:
    http://news.yahoo.com/atlanta-police-arrest-wall-street-protesters-054240601.html

    and how many trust the bankning sector now?
    http://www.marketwatch.com/story/only-23-trust-us-financial-system-poll-2011-10-23

    while our President talks to Leno about success in Libya:
    http://www.npr.org/2011/10/26/141710706/obama-to-leno-libya-a-recipe-for-success

    Hoo-boy! (as Boris Badenov once said)

    finally, a global overview of earthquake action (dutchsinse vid):
    http://www.youtube.com/user/dutchsinse#p/u/0/aEDfGPOxWLM

    Have a pleasant, productive, successful day.

  17. Petey Wheatstraw says:

    BR:

    I see that the OWS Support banner has been taken down. Interesting.

  18. Clem Stone says:

    I saw some stats regarding the horrible consumer confidence numbers yesterday. In the prior 18 times that it has gotten close to this bad the S&P was higher 1 year later all 18 times. On the other hand, 3M results do not bode well for avoiding recession. I suppose a short-lived downturn could resolve both factors.

  19. Ted Kavadas says:

    RE: “the breakout last week above the 3 month trading range at ~1220-25 last week suggests more upside from here…”

    While I think the breakout above the 1220-1230 area is significant, I think that various rising risk factors are more significant at this point.

    Here is a recent post I wrote of what I view as the major rising risk factors, for those interested:

    http://economicgreenfield.blogspot.com/2011/10/danger-signs-in-stock-market-financial.html

  20. wally says:

    “As of today, I remain dubious of that as an immediate outcome.”

    Is that your human bias talking or your factual observation?

  21. wally says:

    “If you are looking out 1-3 months, you are probably bullish. If your outlook is measured in 6-12 months, you might be less sanguine.”

    My personal view is the exact opposite.

  22. Greg0658 says:

    thanks for the suggestion .. should start at part1 tho
    Bullwinkle Goof Gas Attack Pt3
    http://www.youtube.com/watch?v=H58Rv7SkQGc&feature=fvwp&NR=1

    .. there also is a dr demento song ditty “no brain no effect” out there somewhere (or in a slot here)

  23. Through the Looking Glass says:

    I think comparing the past to the present is futile. Why ? We have entered unchartered waters the past turmoil had no access to. This is a bullshit paradigm where the mega greeds have no face they are out of a sci -fi movie where they anticipate where the next angle is and exploit it on a global level without exploring any human angle just a quant program that carefully extracts profits without having any real skin in the game.

    Think they thought of that in 1929? Well then go ahead and extrapolate on brother!!

  24. Drizzt says:

    we will probably be muddling through

  25. dead hobo says:

    Hell if I know. The robots appear to want to keep the markets elevated, but even they have their limits if no new capital enters the picture. Then the only way to make good money is volatility. Therefore, I can say with certainty it will go both up and down over time.

    On the other hand, I’m proud of myself because I took out a pad of paper, googled some stuff, and now I think I understand Europe and the EFSF, and the plan they are ruminating over. What a nightmare for them. The EFSF has no money at this time, only promises from member countries to eventually fund it if bonds it eventually issues go bust. On top of that, Portugal, Greece, Spain, and Italy promise to back about 36% of this obligation. This guarantor funding also includes interest payments on the bonds issued by the EFSF if they go into default.

    Right now they appear to be considering turning the EFSF into an AIG sort of entity that issues debt insurance for private investors who will be happy to invest in Greece, Italy, and what not. What is unclear is who will finance any amounts that exceed Europe’s actual collectable commitment. Remember, about 36% of the EFSF obligation will come from countries that are broke. Thus, the CDO would, at best, appear to be partial insurance unless Germany’s support of leverage also included a blank check. Somewhere along the line, they got the idea that the 440B or 780B in commitments will backstop 2 trillion of actual loans made to deadbeat countries.

    None of the above has anything to do with the 50% or 60% or greater write down of Greek debt. It’s an entirely separate issue.

    None of the above has anything to do with recapitalizing the banks. It’s a separate issue.

    None of the above has anything to do with making any of the PIGS more fiscally responsible. It’s a separate issue.

    The EFSF and anyone dumb enough to buy a CDO from that group may finance bad Greek debt in some way or recapitalize the banks, but the funds for this purpose have not yet been raised. Unless I am wrong, the EFSF only has the authority to raise money and is technically an empty shell at this time.

  26. RothcoUDipthtick says:

    I think I’m erring with you BR on this one. Although, I have to add that this is the most challenging and pressurised I’ve felt in my career ( I managed better in 2008 than this! lol)

    Just on the technicals and seasonal factors I think you may be right. I guess we’ll have to see how the credit & derivative markets react when they see the detail of the European plan. It is possible it may unravel at this point- but may be it will buy some time. In my mind, I hate the fact that I am having to take a trading position on a plan that is suicide in 6-15? months.

    Even without this, how is the data going to look in a few months when this shock feeds through??

    Are we having to invest now on the basis now that Bernanke will ride to the rescue if it gets too bad.

    Guess you have to laugh or it will drive you crazy.

  27. dead hobo says:

    In other words, The EFSF is the SOURCE of Funds, all borrowed via bonds that are guaranteed by Europe. Potentially, the EFSF will become an AIG like entity and write insurance for debt issued by third parties for the purpose of refinancing European debt problems. Somebody please correct me if I am wrong, but no actual funds have been raised yet.

    Nobody has of yet decided on the USE of funds (yet to be raised), nor if they will be gifts or loans made with the expectation of being repaid.

    Thus, the summit disagreements and the BIG PLAN is expected to sort this all out and politicians will decide if the investment bank making all the plans they undoubtedly have no comprehension of is a good one for Europe. (HA HA, I bet it will be great for the i-banks.)

  28. machinehead says:

    @dead hobo — that’s right, I understand that EFSF has been seeded with at most 1-2% of its planned capital. More is to be contributed in stages over the next 2-3 years, with discretionary capital calls available for the rest.

    As a guess, the impact of EFSF bond issuance on pushing up interest rates will neutralize any reduction in rates resulting from the partial insurance. NO free lunch here!

    Plus, no private investor in their right minds is going to sign up for ‘an undertaking of great advantage, but no one to know what it is.’ It’s inherent in its charter that the EFSF will be buying the worst, shakiest junk debt, not the quality stuff.

    Silk purses from sow’s ears — where have we heard that before? Oh yeah — AAA-rated CDOs of 2006-7 vintage. Surely enough time has gone by that we can try that dodge again!

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  30. TripleSigma says:

    Of course it is, when you print money everything goes up nominally.

    Go look at the recent currency, M1 and M2 numbers.

  31. dead hobo says:

    RE the German vote:

    As I read it, the Germans agreed to the concept of leverage as long as it didn’t affect their overall commitment to the EFSF. Thus, they agreed to nothing new. In other words, they told the EFSF to borrow whatever they want and potentially piss away as much as they feel like, but Germany’s commitment to finance the EFSF is fixed and has not increased. Slick. The stocktards should buy another 250 S&P points from that promise.

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