Technical View: 1/03/2008
Principles of the Stock Market

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Have You Seen This?

Have You Seen This?

TECHNICAL VIEW.  Yesterday I pointed out that the chart patterns we’ve built over the last few months could resolve themselves bullishly.  That we could have been base building ever since last August’s drop.  But the other possibility is a break below the August lows and thus a hindsight look back at the stabilization of the last few months as just a modest upward counterswing rally in the midst of a longer term downtrend, i.e. the beginning stages of a new bear market.  In fact, that’s still my view.  I’ve looked at past extended market declines, like in 1969, 1973 and 1974 and that’s a normal pattern.  The stock market declines, then rallies a bit and trades sideways until the news turns really bad once again.  And then stocks decline to further new lows before finding a price level where they can stabilize once more.  Schwartz View:  As written in this space previously, I can see this decline as being more long lasting than anything we’ve seen over the last few years (or since the 2000 to 20002 Mama Bear market decline).  Since this is a decline which is going to be fought tooth and nail.  For example we have these new Asian sovereign wealth funds joining the fray with money to burn.  And we have record high oil prices which has made the Middle East, oil exporting emirates overflow with cash as well.  And we still have corporate balance sheets in fine shape which has led to their stabilizing massive buybacks of stock too.  So any market decline is not going to come easily until these sources of support are mostly gone.  It will be only over a length of time that these sources of funds get used up thus along the way down, we’re going to get head fake rallies periodically.  Along this train of thought, I read on that during the big stock market decline of 2000 to 2002, while the S&P 500 lost 50%, we had five big counterswing rallies up ranging from 10% to 25% and also posted Nasdaq’s nine biggest up days.  So I see a long, extended decline ahead.

Posted 01-03-2008 9:14 AM by Richard Schwartz