Every day I hear someone on CNBC proclaim that "this is the bottom" and you should get in there and buy all those "bargains". "The valuations of the DOW stocks are a steal."
The low of DOW 8,000 immediately after September 11 was "the low" and the market did rally to about 10,700. That's 2,700 points. A smart trader could have made a fortune in six months. Oops! Then there was a Brody to DOW 7500. That's more than 3,000 points. That, for sure, is "the bottom". I heard them say so on TV and radio. It can not go any lower. Can it?
There has been a 1,500 point rally, but there now seems to be another one of those 'Oops' taking place. What is going on anyway?
The great majority of the media are too young to remember the last bear market of 1973-74 when the S & P lost 43% and the Value Line index was down 75%. In the last 2 years this bear has seen the S & P500 index lose 50% and there does not seem to be any so-called bottom in sight. Yet investors are encouraged to buy "for the long haul". Even the staunchest Buy and Holders are finding out that they need to have loss limit orders in – a long time ago. There is such a thing as market timing.
What has been happening is the market is making a correction of the excesses of the 18-year bull market from 1982 to 2000. If it took 18 years to reach the top then how long will it take to get to the bottom? I wish I knew. The predictions run from today to 15 years hence. Japan's bear just celebrated (?) It's 19-year low. From 1920 to 1980 there were 3 bull markets that lasted about 16 years and each was followed by bear markets that hung on for about an equal length of time.
As a technical analyst I have not seen anything that makes me believe we are near "the bottom".
And when that happens will the market take off on another bull run? Not very kindly as the little guy will be broke and so shook up from his losses he will vow to "never play the market again". That very thing has taken place at the bottom of every major bear market. In 1932 it was more than a generation before investor confidence returned. Am I exemplifying this could be another 1929-32? Anything is possible with the stock market. No broker will ever tell you that cash is a position. Cash at zero percent interest is better than losing 20% each year.
They may be having a big garage sale on Wall Street today, but I prefer to keep my money in my pocket – or maybe under the mattress.