Bear Market Bottom…Maybe
Today, the Dow Industrials, after being as low as 7,965, closed up 553 to 8,835 – an 875 point upward move! Similarly, the S&P 500 was up 59 to 911 and the NASDAQ Composite was up 97 to 1,597. The US$ Index was down almost 1.4 as the US$ lost ground to several major world currencies and commodities, including gold (up $10 per Troy ounce). Two significant classic signals happened today: •We had a possible Key Reversal Day. A Key Reversal Day happens when one or several broad indices are headed one direction, then reverse and close the other direction on high volume. Today, the broad indices were down significantly, then reversed in the early afternoon and closed dramatically up. The only question mark is whether there was “high volume” today. Relative to recent volume, the volume was good. In addition, there was a large volume surge when the direction swung from negative to positive, following through for the rest of the day. •We had a successful retest of the market’s recent lows, at least for the Dow Industrials. Neither the annual intraday low of 7,882 nor the closing low of 8,175 were violated today. This adds credibility to the contention that there is real support at those levels. These are both classic signals. That they occurred on the same day gives the signals even more credibility. If (a BIG if) we can rely on the message given by these classic signals and if (another BIG if) tomorrow shows significant upward follow-through, we may look back later and see the bottom for this bear market was put it today. Before getting too excited, consider this: •This market has already broken a lot of classic “rules.” It could break these two signals and add to the pile of signals it’s already broken. •Under classic Dow Theory, we are not yet at the point where we could consider stocks at “great values.” Classic markers under this standard would be a Dow Industrial Dividend Yield of around 6% and a P/E of 10 or less. We’re not terribly far away, though. •Under classic Dow Theory, market psychology should be very black. At the bottom of a great bear market like this, most people should not even be interested in investing in stocks, having given up on them. Therefore, even the discussion of “calling” a bottom here makes it unlikely that the bottom has been reached, unless I’m a genius. However, to paraphrase the famous Joe Theisman, “There are no geniuses in investing; geniuses are guys like Norman Einstein.” That being said, these joint signals happening today is the most positive development I’ve seen in a while; perhaps as long as a year or more. Just remember to keep your weight on the foot that’s OUT of the water until you find out if you want to jump in. Submitted by Callom Jones on November 13, 2008 - 4:36pm. Callom B. Jones, V, CPA-PFS is a stockbroker for Perkins, Smart & Boyd, Inc of Fairway, KS. Rita http://www,indonesiancompany.com
