Calling A Bear Market Bottom – What It Takes

INVESTOR’S first read.com – Daily edge before the open
DJIA:22,653
S&P 500: 2,659
Nasdaq: 7,887
Russell: 1,139
Wednesday,  Apri1 8, 2020   9:12 a.m.
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brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)  My blog headline:  “Bear Market…Why?”  Here I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February.
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December 17 (DJIA: 28,235)
I repeated that projection.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. We are already down 30%.
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On March 2009 (DJIA: 6,800) I issued a SPECIAL BULLETIN “BUY” a  day after the Great Bear Market (2007-2009) ended.
Currently, I see an attempt to base out until May then another slide into October with a total bear market decline of 45% to 55%.
A game changer would be a sharp reversal in the growth of COVID cases and the lifting of  measures designed to counter it.  Additionally, the ability of people and businesses to adapt and innovate.
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Brief bio: In investment business 57 years, writing about stock market  for 52 years, including  investment publishers, brokers, research firms, investment bankers, plus my own investment advisories,  mostly as independent contractor to maintain independence of analysis.  “In the trenches” for every bear/bull market  since 1962. Started before  quote machines  as a tape reader/trader, posting charts by hand. Primarily  a technical analyst, but research includes fundamental, monetary, economic, psychological factors.  Love rough and tumble… telling the story. CNBC-TV, Been writing investors first read.com daily before the open for 11 years. Research recommendations/profiles of hundreds small companies.
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TODAY
In order to take advantage of a bottom in a bear market, investors need three things
1)“CASH;”  2) Timing;  3) The willingness to ignore fear and step in when buying a stock is the last thing anyone in their right mind wants to do.
1) “CASH” – This is why I have repeatedly urged readers to maintain a cash reserve ranging depending on risk, between 30% to 90%.  With the stock market, there are always several balls up in the air, any one of which can come down without warning and change everything. COVID-19 is an example.
Being bearish is one of the hazards of my business.  People hate bears and especially if they turn out to be right.  No one wants the party to end when the market is rising and they are making money.
But “cash” is an investment. It is a cushion against a downturn; a reserve for emergencies, and a reservoir to tap for buying at lower prices, especially after corrections and bear market bottoms.
2) Timing: Getting close helps, catching the exact bottom rare. There are so many false starts, bear market rallies that look like the big turn, but are followed by another painful leg down.
Here patience and the willingness to miss the exact bottom are key. Buying because one is afraid of missing a stock’s or market’s move up is one of the biggest contributors to poor timing.
     3) Willingness to step in:  Bottoms are fraught with outright terror.  The bear market’s plunge has long past the “ouch” point and is now at the “I can’t stand it anymore” point where all one wants to do is stop the bloodletting.  The urge is to sell out, and that urge is close to the bottom.
Here’s is where having a modest amount of cash  makes catching the bottom so difficult. There is no room for poor timing.  One tactic would be to take partial positions to reduce the damage if buying is premature. Going all-in is foolish.
I HOPE ENOUGH READERS RAISED CASH AS A RESULT OF MY ANALYSIS. THERE IS A CRUEL DUAL PAIN THIS TIME – COVID-19 IS RAVAGING OUR LIVES, LITERALLY AND ECONOMICALLY, AND  AT THE SAME TIME DESTROYING PORTFOLIOS AND FUTURES.
BUT I MUST CALL IT AS I SEE IT AND THAT MEANS WARNING READERS OF FURTHER RISK YET ALERTING THEM OF OPPORTUNITY WHEN I SEE IT.
There will be opportunities for traders, those savvy and nimble enough to buy and sell quickly while knowing the risks of being wrong.  For that, I will note “traders only”
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With the DJIA at 6,800, I published a Special Bulletin “BUY”  on March 10, 2009, within a day of the bottom of the Great Bear Market (2007-2009).  I want to get that close this time.

BOTTOM LINE: The stock market is NOT going back to new highs where the S&P 500 was vastly overvalued, in fact, more overvalued than at any time over the last 100 years excepting the dot-com  Internet bubble 1999-2000.
This is a bear market rally that will yield to another plunge when reality sets in that enormous economic damage has been done by the necessary response to COVID-19.
Beware of election year hype. It’ll come from the Fed, the Administration and Street.
It will suck investors in for another round of devastation starting within a month or maybe not until fall.
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RECENT POSTS:
Tuesday April 7, 2020  “Bear Market Rally to Launch Attack on DJIA 24,000, A Chance to Sell To the Sleeping Level”    “The worst is behind us,” says Mike Wilson, chief U.S. equity strategist for Morgan Stanley, referring to the nation’s massive monetary and fiscal stimulus and the most attractive valuations since 2011.
It would be nice
if both COVID-19 and the bear market/recession were on their way out of our lives, but I think Mr. Wilson needs to walk around the block and take a hard look at what has happened and especially  the fact long-lasting damage has been done to people’s lives, the economy and CONFIDENCE in stocks as an investment.
With the DJIA at 19,173 on March 23, I headlined, Bear Market Rally to Precede Spike Down to DJIA 14,000 (S&P 500: 1,575). As I have often noted, that can happen shortly or in the fall.
That conclusion was and still is, based on the fact that the market has only given up the final surge of the 2009-2020 bull market, December 26 2018 – February 8, 2020, a bubble created by Federal Reserve hype and the Street’s assurance that it was safe to buy aggressively since the Fed had its back with rate cuts and its pumping money into the system.
With economic and humanitarian conditions as horrendous and uncertain as they are now, I expect a bear market to do more damage like retracing two-thirds of the 2009-2020 bull market which would take the DJIA back to 14,209 (S&P 500:1,575).
     The DJIA is now up 18.3% since my March bear market rally call, has reached yesterday’s generous upside projections and will add another 5% -7%  as investors scramble to jump on board afraid of missing a new bull market.
Hopefully, this rally can ease the pain of the February/March crunch, but I expect it to peak close to DJIA 23,900 (S&P 500: 2,790) late this month or in May and slide into the fall dropping to DJIA 14,250 (S&P 500: 1,575) as the reality of the damage COVID-19 has done surfaces………and the realization that monetary and fiscal assistance in the future will not be available again, i.e. no more safety valves, bail outs, assistance – this was an 8-count, the next time, it’s a 10-count.
      The impact of COVID-19 will take a huge toll on how we live our lives and do business, in fact, it already has.
THAT CANNOT BE DISMISSED CASUALLY BY WALL STREET ANALYSTS AND POLITICIANS.
We know the Administration will hype the market rebound, but DO NOT BE SURPRISED
IF FED CHIEF POWELL JUMPS IN NOW IN AN ATTEMPT TO RE-INFLATE THE ILL-FATED BUBBLE HE NURTURED BETWEEN DECEMBER 2018 AND FEBRUARY 2020, THE ONE THAT SUCKED UNSUSPECTING INVESTORS IN BEFORE COVID-19  BURST IT LEADING TO A 35%, 11-DAY FREEFALL IN STOCKS.
I am not alone on my projections for another leg down. Last Sunday, Scott Minerd, global chief investment officer for Guggenheim Partners told MarketWatch  the worst may be far from over, projecting a drop to 1,500 by the S&P 500 as a harsh new reality framed by the global economic slowdown of COVID-19’s impact  sets is.

 

 

 Monday  April 6, 2020  (DJIA: 22,079)  “The Stock Market Was Grossly Overvalued in February Before the Crash, And is Still Overvalued -Dell the Rally Risk of 35% Plunge”   Bloomberg Markets headlines “Stocks Jump… on Easing Virus Tolls.” It reported, Lindsey Piegza, chief economist at Stifel Nicolaus & Co told Bloomberg TV, that if the virus is brought under control the economy can reopened by the end of April, early May. If that does occur, she said, it’s likely the downturn can be reduced from a depressionary scenario into a recessionary scenario.
OK, everyone wants COVID-19 and the bear market to go away, but that is not going to happen soon.
      For one, COVID-19 is still spreading and the impact of countering it is going to have a devastating impact on our economy forever changing how we live our lives and do business.
THE STOCK MARKET WAS INSANELY OVERVALUED BY HISTORICAL STANDARDS IN FEBRUARY WHEN COVID PRICKED THE FED-INDUCED BUBBLE,  BUT IS NO LOWER NOW WHEN THAT BUBBLE BEGAN TO INFLATE. IT IS STILL OVERVALUED AND ALL THE FED, ADMINISTRATION AND WALL STREET HYPE CANNOT TAKE IT BACK UP TO THOSE INSANE LEVELS.
        Three strikes and Wall Street is out !   Three big bull markets – 1998-2000; 2002-2007; and 2009-2020 all followed by crippling bear markets of 50% +for 2000-2002; m2007-2009 and this one that has been down 35% on its way to down 54% before it’s over.
It is back to the basics, Graham & Dodd mentality –   no more partying on Wall Street at the expense of investment portfolios for a long time.
BOTTOM LINE:
A rally here can get to DJIA:22,617 (S&P 500:2,637) with enough hype from the Administration, Street and Fed.  It would be an opportunity to recoup losses and raise cash before another leg down.
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Friday April 3, 20020  “  Crash Only Erased the Bubble, Did Not Discount Economic Consequences”  Bear markets drop to levels where enough buyers show up to offset the selling, which often is frenzied and overdone in face of fear and confusion.
The problem I have with this bear market is  it started at the top of the bubble where the market was absurdly overvalued only bringing the market down to the level where the bubble started to inflate.


Chart: BigCharts.com  2-year chart
By all means, go to this site. It offers charts in two-day, five-day, 10-day, one, 2,3,6-month, 1,2,3,4,5,10 year cycles.
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The bubble, a 13-month, 45% surge in the S&P 500 starting in December 2018 was not based on fundamentals, but on expectations by the Street that the “Fed” had its back, that it would (and did) pour money into the system and slash interest rates.  Why not run the table ?
Assuming the 13-month bubble had no justification, why then shouldn’t the discounting process for COVID-19 and its economic consequences start at current levels where the bubble started to inflate ?
This is why I think another leg down to at least Dow 14,250 (S&P 500 1,575) will happen shortly of in the fall.
Everyone now knows the Fed and governments at all levels will be stepping in to prevent a deep recession/depression, why isn’t the market moving higher ?
Because it is even more overvalued now than it was in February before the bubble burst, AND we are on an economic turf we haven’t been on since the 1929 crash.
       In order to adequately discount what is happening, the market MUST go lower, a lot lower.
Hard as it is to sell at these levels, one has to assess their tolerance for further losses.
       There will be a bump in the economy when news that COVID has topped out and people are emerging from their homes, businesses opening their doors and the beginning of a return to normalcy. If that bump comes before another crunch in prices, it will give investors a chance to recoup some losses, but a return to the bubble highs – not going to happen.
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Thursday April 2, 2020 “Market Has Not Yet Discounted the Flow of Bad Economic News”
The accompanying chart tells a sad story.  For one, investment portfolios were crushed in a matter of weeks.  For another,  a bubble was created by mostly  hype in 2019 by the Fed, the Administration and Street, sucking unsuspecting investors into the market  at higher and higher prices – lambs led to slaughter.
Why, after 10 years of bull market and a gain in the market averages 240%, was it necessary to orchestrate one more surge when stocks were seriously overvalued in the first place and ridiculously overvalued when the bubble  burst in mid-February ?  Politics ? Greed ?  Naivete ?
At some point, news of the spread of COVID-19 will indicate its bubble too has been pricked.  People will emerge from their homes, businesses will return to pick up the pieces, and the stock market will rally.  Hype by these same sources will return.
The question will be, if the market was overvalued in December 2018 when the bubble began to inflate in December 2018  and more so in February 2020, why would the market return to those levels after so much damage has been done to the economy and investor confidence ?
I expect another leg down  shortly or in the fall to DJIA 14,250 (S&P 500: 1,575). I hope it doesn’t happen, but this simply looks like a way station for lower prices.
Bear market rallies are part of the downtrend of stock prices. Their danger lies in the fact they suck investors in well before the bottom.
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Wednesday April 1  (DJIA:21,917)  “When ‘Ouch’ Becomes Excruciating Pain”
A rally in early trading yesterday failed, indicating the bear market rally that started  six days ago was tiring…..we’ll see.
Obviously, investors want something to happen to jack the market up, so they can sell…. or sleep.
Expect the Fed, Administration and Street to try all means possible to hype the market when the economy shows signs of a tiny bounce.  As welcome as the success of their hype would be, it would only set up another decline.
If you get it, lighten up.
The problem is not Americans willing to step up to the plate as our healthcare providers are doing or continue to provide vital  services to our economy, but the problem is in the pricing of the stock market – it was extremely overvalued in February before the crash and is still overvalued, and will be more overvalued at higher prices.
I just don’t see our economy recovering from this severe setback anytime soon. Dominos will tumble for many months. FactSet reported the Street sees a strong rebound in corporate earnings next year. But, compared with what is happening now, any company’s earnings will be easy to beat   – big deal
Everyone wants the market to rebound further, however,  experience is when you find yourself hoping for the market to do something, rise/decline, you are on the wrong side of it.
Bottom Line:
A bear market rally started on March 24 after posting lows of DJIA: 18,213 (S&P 500: 2,291) and rose  24% and 20% respectively before trading sideways.
The futures indicate lower prices at the open. The bulls must move the DJIA above 22,600, the bears below 21,400 to set up the next meaningful move.
Investment opportunities of a lifetime don’t just sit there waiting for everyone to jump on board, they come when there is little if any hope, when “ouch” becomes excruciating pain.
Stock prices are still at the December 2018 level when the Fed started to inflate the fateful bubble that set investors up for the February/March crash.

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Tuesday March 31, 2020 (DJIA: 22,327) “Opportunity of a Lifetime” at Dow 14,240 Now is the time investors want to  have cash for a bear market bottom. Now is the time for investors to mentally prepare for a bear market bottom at lower levels, a time when the doom and gloom is so thick no one will want to buy stocks.
The Street is looking ahead to a peak for COVID-19 in late April/early May and a return to normal.   Nonsense !
However, this is a presidential election year, expect an enormous amount of hype and misinformation once COVID peaks and the economy initially  jumps back.
The market averages are no lower than the December 2018 lows when the Fed-orchestrated monster bubble  was launched. Most of the 35% four-week plunge in the market was a matter of erasing the Fed’s bubble.
As I see it, a bear market was going to happen anyhow without COVID, just much  more gradual. At 11 years old, the economic expansion was twice the norm and bull market four times  the norm, that’s extreme and extremes mark bull tops and bear bottoms..
Bear market rallies that look like the big turn are a common occurrence in bear markets.
If they have cash, investors will be anxious to recoup losses and jump back in, only to see another leg down and more losses.
      After three days of probing, my March 23  upside projections for this bear market rally may be broken yielding to new projections of DJIA: 23; S&P 500 : 2,716, and Nasdaq Comp.: 8,027. If it happens, even if it doesn’t, raise cash, because this market will go lower shortly or in the fall.
I still expect a bear market bottom of DJIA:14,250 (S&P 500: 1,575).
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer.  Neither Game-On Analysis, LLC, nor George  Brooks  is  registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed  as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

 

 

 

 

 

 

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