Bear Market Rally Comparison

A nice historical comparison from ChartoftheDay.com

A Change In Strategy

"There are two things that the past ten years should have made abundantly clear by now, which is that a buy and hold strategy (B&H) is a recipe for disaster in a secular bear market, and that one cannot ignore the message of the market when it is shouting at you. Knowing the investment climate is pivotal as investment approaches have different outcomes in different climates. A B&H approach is one of the best strategies to have during a secular bull market (think 1982-2000), while a trading/market timing strategy is a better approach during a secular bear market (2000-present). Given that we are still within the confines of a secular bear market where real stock prices peaked in 2000, secular bear market rules apply and risk management should become a top priority."
Chris Puplava
Source: http://financialsense.com/contributors/chris-puplava/when-the-market-speaks-listen


Remember the Dow/Gold Ratio???

A Twist On The Spill

I thought that this "larger view" perspective on the BP oil spill was interesting.

"The specifics of the disasters are, of course, unpredictable.  But it's reasonable to expect an increasingly negative social mood to bring about a daisy chain of incompetent decision making, corner cutting and the willingness to assume bad risks which will result in tragic accidents.  What may turn out to be the 'biggest environmental disaster the country has ever faced' fits perfectly with the resumption of the bear market that will end as the biggest in the lives of all who survive it."
Steve Hochberg, Elliott Wave International

The Slope of Hope

"Even though the market is about to begin its greatest decline ever, the era of hope is not quite finished.  For as long as another year and a half, there will be rallies, fixes, hopes and reasons to believe in recovery.  Our name for this phase of the bear market is the 'Slope of Hope'."
Robert Prechter, June 2010

The Wall of Worry

On http://www.financialsense.com/, Kelley Wright makes an interesting case for market correction:
"The above notwithstanding, many in the punditry and on the sell side of Wall Street are trumpeting that investors are missing out on a new secular bull market by focusing too much on the ever present wall of worry. Let me tell you why I think they will rue the day. Germany is not going to come to the rescue of Greece, or any other country for that matter. In fact, I would suggest that we are witnessing the beginning of the end of Europe's economic and monetary union as we know it. This will have consequences across the global financial markets. Recently signed health care legislation is a disaster for the US across many different fronts, the least of which is there still isn’t enough money to pay for it, which will result in a VAT tax and austerity initiatives; neither of which is pro-growth and drains consumption. State budgets are a mess; California is probably bankrupt. With unfunded pension liabilities into the hundreds of billions, not to mention the added costs of new health care mandates, the states will be the next group to line up for bailouts. Officially, unemployment is just below 10%. When looked at fully, however, the number is closer to 17%. People without a job do not consume; people worried about their job act in much the same way. The next change in trend for interest rates will most surely result in higher yields. While this may be a plus for coupon clippers, it will be a drain on those carrying consumer debts. Housing is still a mess. Commercial real estate loans are the next shoe to drop. So to those who think we are in a new secular bull market, I suggest you take off your rose colored glasses and look at bear market history. All major bear markets have had a similar pattern; three down legs interspersed by two, usually profitable, counter-trend rallies. If the present bear market began in 2000, the first down leg ended in late 2002. The first counter-trend rally topped in 2007 and the second leg down ended in March, 2009. So if history repeats a third leg waits out there. Is it chiseled in stone? Of course not; there is always the possibility that this time it is different."

The Rooting of a Stampede

"One of the most dangerous aspects of this bear market rally is that virtually no one believes or understands that we are still operating within the context of a much longer-term secular bear market. Once this becomes obvious, the sheeple will begin to panic and the stampede will take root. This is in part why Phase II declines prove to be even more devastating than the initial Phase I decline."
Tim Wood - February 26, 2010

The Wide Disparity

"The wide disparity between the hope of investor expectations and the reality of economic strength shows that the great bear market, already ten years old, remains in its early stages. As the next leg down matures, hope will turn to despair, and it will become impossible to ignore the persistence of the economic contraction."
Elliott Wave International - January 29, 2010

Wave 2 Psychology

"The stock market rebound since March counts well as a Primary Wave Two. In Elliott Wave analysis of wave two personality in a bear market, this means investors are thoroughly convinced that the bull is back. Aggressive euphoria and denial abound. This compliments the talk of “recovery” that dominates the noise of what passes for news."
Elliott Wave International

The Bear Comparison

The summary below is sourced from Weiss Research Inc. It provides a nice comparison of our recent contraction to others in the pasts. Note the largest market correction and what event occurred to reverse it.

Weiss' 11 Laws of Bear Market Success

Martin Weiss just released a video highlighting 11 Laws for Bear Market Success. Here they are:

The 11 Laws of Bear Market Success
By Martin Weiss, Claus Vogt, and Mike Larson

1. Protect capital; keep ready store of cash; get rid of losers
2. Use common sense
3. Don’t count on the government to boost your investments. Use government-inspired rallies as opportunities to sell.
4. Invest exclusively in liquid, easy-to-sell investments.
5. Stay flexible: expand your horizons beyond traditional investment strategies.
6. Use investments that move independently of stocks and bonds (currencies, gold).
7. Find special situations that go up despite a bear market (Ex. Companies that are virtually depression-proof)
8. Use investments that go up because of a bear market (Ex. Inverse ETF’s).
9. Balance your portfolio: even in a bear market, don’t bet exclusively on the downside.
10. Don’t fall in love with your investments: Take profits along the way and roll them into new opportunities.
11. Be a contrarian! Buck the crowd!

To watch the video:
http://weiss.streamlogics.com/bearmarketsuccess/