A Bear Market Until Proven Otherwise ~ The Risk Averse Alert

Tuesday, May 05, 2009

A Bear Market Until Proven Otherwise

Seeing in some significant places the manner in which '02 - '03 bottom recently was taken out ... and the technical configuration forming since ... there's no mystery why one is wise being careful here. This is a good time to remind one's self we remain in a bear market.

Take a look, for example, at the S&P 100...

OEX weekly

How easy it is imagining the index's decline thus far since '07 possibly being just the beginning of a terrible bear market whose worst is yet to come.

[Weekly] RSI finds itself in balance (i.e. at 50) with OEX at an inflection point (having reacted back up to '02 - '03 support, now resistance). Present similarity to late '01, early '02 period deserves alert consideration here ... to say the least.

This is why I recently switched 401(k) allocations out of the stock market and back into money market funds. As I have suggested before, it is possible present levels could be the best that are seen for the next five years or more. Sideways trading over the next few months — like late-'01, early-'02 — also is possible before the tide turns sharply lower.

This more bearish take on the present moment would seem to make NASDAQ 2200 a no go. Yet that more positive possibility still remains on the radar. Just not this instant has been my stance, if it is to happen at all. (Could large-cap OEX perform similarly to late-'01, early '02 over months ahead, while more speculative COMP reaches its 2200 objective sometime later this year? Such an outcome would be fitting an asset class poised for a further pummeling.)


There are a number of technically-grounded reasons to suspect a turn lower in the market is at hand. The NYSE Bullish Percent Index presents one such case. It tells a story both of absolute extremes and relative divergences.


In briefly presenting the current situation as I have here ... yesterday's leap higher and any thought supposing a melt-up might yet be in store ... should be seen challenged by a technical condition finding many measures supporting the likelihood of an imminent turn lower ... assuming the recent past offers fair comparison with the present moment.

There is good reason to be cautious here.

Fast Money
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Paul Davis said...

Perhaps last gasp of rally is piling-into big caps, so that indexes hit resistance levels/MA targets? Naz just muddles. Then everything sold down to 50 MA. What will catalyst be?

TC said...

Last gasp is how I see this rally, Paul. Catalyst lower to 50-day MA could begin with the simple fact a correction of the market's advance off March '09 bottom is due. Any number of real circumstances could be added ... like, say, structured finance — the [former] lynch-pin of the U.S. economy (according to former JPM CEO John Lipsky) — remains a key credit market element still very much in disarray ... or, say, severely restricted capacity of impaired financial institutions to expand their balance sheets and paper over present insolvency continues ... or, say, industrial bankruptcy could spread to the nation's bread basket and threaten food supply later this year ... the list of reasonable possibilities scarcely has been any uglier...