Search results matching tag 'Bear Market Legs'

Watch One Particular Stock Market Guru!

RichardSchwartz — Fri, 14 Aug 2009 13:36:00 GMT

AN HISTORIC GURU VIEW. Written Friday morning, August 14^th, 2009.

Being in and around the stock market for the last 35 years -- I can’t believe it’s been that long! -- I’ve seen market gurus burn hot and cold. In my early years I was in more of a daze, doing ancillary brokerage jobs rather than following the stock market closely, just trying to figure out the whole brokerage industry. What a stock broker did, etc. Did I want to be one? Would I be recommending my own stuff? And again not being in New York city, the epicenter of finance, I was on the outside looking in. Even today that’s ones largest hurdle. So anyone wanting into the business I’d advise going where the action is, New York or another financial center like London. If not New York or London are not for you, find a big firm, say a big mutual fund family and get to its headquarters, be it in Boston or Singapore, etc. Anyway, back to point.

Granville & More. I’ve seen Joe Granville burn hot (and drop his pants to show stock quotes on his boxers and walk on water on a hidden board) and turn ice cold in popularity and heard about Jim Dines. I used to follow that curly haired woman guru, yes, that image is bringing her name back, Elaine Garzarelli. For many years I read Richard Russell, one of the deans of newsletter writers and whom I modeled my own letter after, took sample letters to numerous letter writers including Ned Davis, Dan Sullivan, Harry Schultz, Norman Fosback, Lou Navellier, .Marty Zweig, Stan Weinstein and unearthed Ted Warren’s one book (one of my favorites) and read everything I could find. I like William O’Neal’s approach and regular readers know I use and recommend his paper and its IBD 100 list. Having an economics background I gravitated to Ed Hyman’s work and read a number of economist A. Gary Shilling’s books. And read John Naisbitt’s Megatrends series with his long range projections. I’ve read and studied all the Dow theorists from Dow to Hamilton to Rhea to E. George Schaefer to Russell. I continue to read many new guys too, Alexander Elder, “Trader Vic” Sperandeo and on and on. Etc., etc. etc. Many unknown letter writers too. I really could throw a ton of names around if I sat down and reviewed my stock market library and mine and other’s old market letters. So I’ve seen many gurus come and go and burn hot and cold. But one who I continue to admire and track is Bob Prechter of Elliott Wave fame who was the #1 guru way back when. He was a major market mover like Joe Granville. While he uses charts -- which Wall Street loves to disdain, I think that’s mainstream Wall Street spinning a veil and case on the public to justify their big bucks, they all surreptitiously use ‘em -- Mr. Prechter also is now ties market swings to societal mood changes (which makes good sense to me). And is in the process of attempting to add and formalize to current investment analysis the concept of tying stock market trends to mood shifts. “Go for it Bob!”

SCHWARTZ RECOMMENDATION: TRACK MR. PRECHTER GOING FORWARD!

Anyway, I have to strongly recommend keeping one eye peeled on what Mr. Prechter is advising right now. Especially now! I’ve related the histories of Granville and Dines going terribly wrong in this letter, getting stubbornly bearish right at major market bottoms, so I realize the danger now for Prechter in remaining so adamantly bearish but I can’t fault his analysis, what he’s saying and my 35 years in the business tells me to not pooh-pooh his foresight. After reading everyone I can and adding in own my market intuition formed over those 35 years in and around the stock market, I’d say he’s on track. So I’m with him and the other bears, Jim Rogers, Marc Faber, Gary Shilling, the Comstock guys and others out there, still recommending extreme caution going forward. Remember us outsiders were bearish but correct at the July through October 2007 bull market peak while most of those bullish today were also bullish back then and missed that major top completely. Amazing! I mean even after the subprime disaster unfolding ahead became plain in August 2007 and on the head fake rally to new highs in October 2007 they remained Pollyannaishly [sic] blinded. (And no, for all you individual investor skeptics out there about Mr. Prechter’s work, and I know there’s a lot by reading the responses and comments now added at the end of most all Internet carried research, no I’m not a shill for Prechter. Never met, emailed or corresponded with him at all.)

So, yes, play this rally which will likely run longer than most bears think, but stay near the exit; somehow!

For a FREE sample of my daily, emailed stock market letter and advisory, email me at RichardStk@aol.com.

The Great Recession Unfolds This Way

RichardSchwartz — Tue, 28 Jul 2009 18:16:00 GMT

SCHWARTZ RECESSION CONCLUSION. Tuesday, July 28^th, 2009.

Ok, after much consideration, here’s my conclusion as to what unfolds going forward. The economy struggles through but survives the next few years. About 20% of Americans have a very, very difficult time out of work and out of hope but the other 80% make out all right. Similar to the 1930s when those with a job managed. Today the US economy is so deep and varied, meaning there is so much diversification, that there will be areas of growth and even prosperity along with much despair. The stock market, in its infinite wisdom and with its amazing discounting faculty, based on the government having prevented an all out total collapse, sees this and settles down. And this mini bull market lasts and lasts confounding the adamant bears. But somewhere along the line we get a recession within this Great Recession, just like hit America in the 1930s when we got a “depression within the depression” after a five year hiatus and stock market run up, which hit in 1937-1938 when the market crashed big time. This time it will be a recession within a recession because of all the safety nets put in place after and as a result of the Great Depression of the 1930s. What will cause this second down turn will be the other 80% of Americans retrenching. I mean the 80% of Americans who are monitoring today’s troubles but not being directly affected by today’s high and rising unemployment are continuing their current lifestyles, meaning continuing their current over spending habits without (m)any changes today. I see this going on all around me. People still working aren’t cutting back much, it’s only those rich and not so rich alike who have been struck head-on by today’s sudden economic downturn, who have been FORCED to cut back. The other 80% while being a bit more cautious are continuing their too abundant lifestyles. Myself I’m not exactly sure what will cause this second and more all-encompassing retrenchment but I believe it does lie ahead. Likely some “Black Swan” event, some unpredictable sudden shock. But the domino, rippling outward series of cutbacks now working their way through America will be partially to blame, having weakened the foundation. I must say driving through the village of New Paltz, NY this morning, probably the most vivacious and bustling town in the Catskills or mid-Hudson River valley region partially buoyed by its SUNY college, I saw more 'For Sale' and 'For Rent' and 'For Lease' signs than ever before in my ten year history living here. Ironically it’s the old paradox of thrift which may get us over time. Meaning savings is good for the individual but bad for the overall economy. For more, agree or disagree, email me at RichardStk@aol.com for a sample of my daily "learning, teaching, always evolving stock market letter and advisory service."

Monday Weekly Strategy

RichardSchwartz — Mon, 22 Dec 2008 14:37:00 GMT

Richard Schwartz's

PRINCIPLES OF THE STOCK MARKET

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Eighteenth Consecutive Year of Publication; Letter #1; September 18^th, 1990

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Monday, December 22^nd, 2008: So here it is, last letter ‘till Monday, January 5^th, as Lucy & I fly off to the white sand, warm blue waters of the Caribbean, maybe on a last hurrah (if the economy keeps sliding). I’m taking Cycles of American History & Rethinking the Great Depression books. Our routine is: Go to the beach, play backgammon, read & go out to dinner. Day after day. Warm our bones & work on new tans.

THE BIG PICTURE

Friday I saw John Bogle, who has been on Wall Street for 50 years and who created the first index fund, the Vanguard 500 Index Fund back in 1975, say investment bankers and bankers generally owe the country a huge apology (which I doubt we ever get). Their imprudent speculations and greed for massive fees from too complex speculations led to today’s financial sector problems, problems which have now fed out to the real economy hurting innocent, hard working, everyday Americans. Mr. Bogle says greed has even spread out to our whole economy, that we’ve morphed into in a “me first” society and it’s something we have to seriously take a look at. Thus capitalism, allowing markets to work unfettered of regulation and based on trust and trusting, has now been “deeply discredited.” Even the underpinnings of capitalism have changed radically. We’re no longer an ownership society whereby individual stockholders used to select and then hold 92% of all common shares; institutions 8%. Now institutions control 75% of shares through huge sums entrusted to them by others and have not invested prudently. Again, because of the incredible fees they got for investing. Mr. Bogle says they sure wouldn’t manage their own monies so recklessly. These institutions were supposed to be wiser than individuals but, again, it’s not their money. Supporting Mr. Bogle’s view is the revelation that 29 of the 30 largest losers in the Bernie Madoff Ponzi scheme scandal were institutions whereby just one of these fund of fund companies was paid $160 million in 2007 alone for recommending the Madoff “hedge fund.” In other words, where was the fiduciary responsibility, the prudency, the probity expected when we entrust institutions to manage 75% of our investments? Schwartz View: Regular readers know I’ve been distressed and pounding the table about a number of these societal issues for years. About capitalism running amuck, culminating its 30-year trend toward widening the gap between it and its counterpart, democracy, with President Bush’s skewed one way Texas twang policy saying the be all and end all is that “bidness is bidness” and thus stifling regulation. And about society becoming so uncivilized, we ended up booing our own hometown, beloved sports teams! So while no one wants to live through what may come next in the economy, I have to say America has finally woken up, albeit after the nightmare it usually takes to precipitate major change, and that we are now started down a long and arduous path, but one finally pointed in the right direction again. As one example, we’ve even started to SAVE once again; amazing! So, for myself, I guess sort of a contrary indicator in recent years, I’m becoming more optimistic and bullish on our future. Finally! “Go America Go!”

THE ECONOMY

It became apparent that the US economy was suddenly falling-off-a-cliff right after Lehman Brothers became the one firm chosen NOT to be bailed out by the Federal Reserve and US Treasury Department. (Looked back upon as a colossal mistake in strategy I’ve read.) Lehman’s bankruptcy rippled out far and wide and led directly to losses in some money market funds, a “breaking of the buck,” and thus then to a total loss of confidence. Now, by all accounts, the economy is in total free fall. This sudden screeching halt in US business activity has caused the same in our global trading partners and most everywhere I look is now in corresponding economic free fall. You extrapolate it for yourselves from here. One view I’m pondering is that many times sharp declines lead to the second leg of a V-move, back up, and we’re overdue. Maybe stocks, with their recent unwillingness to keep going lower on bad news, means Mr. Market (the consensus of large investors) sees some end out there to the economic free fall. Still, we’d have to see some economic revival to expect a sustained V snapback in stocks. For now, I see 2009 providing a steady stream of bad news every time we look up. Just like in the second year of the last Papa Bear bear market, back in 1974, a continuing stream of bad news back then ultimately overwhelmed all attempts to rally until the final months of that year. Schwartz View: The consensus I’m hearing is that this sudden, fall-off-the-cliff global economic contraction is NOT going to lead to a repeat of the depression-spawned 1930s starting with its four-year long period of contraction followed by its anemic recovery, a.k.a. the Great Depression. I hate to follow any consensus especially when this one’s been so wrong for so long. But my own history look backs and studies by Federal Reserve Bank Chairman Ben Bernanke, an expert on what went wrong in the 1930s, turning a recession into a depression, show that we raised taxes, cut spending and blocked global trade, just the wrong policies. So I sure don’t expect any exact repeat of those failed policies. Leading me to think out of the box and that maybe today’s Fed policy of battling a deflationary depression is also implementing incorrect strategy. How about worrying against runaway inflation spawning from all the money the US and now the world has and is still throwing at this economic slump? Just the problems we worried about in the early 1930s but didn’t occur. You know the old saying, people fight the wrong war, the old war, because that’s what’s still fresh in their minds. Thus, summing up, maybe we can’t expect much creativeness from the Fed pointing in the less obvious direction of battling inflation since they are entrusted with getting us through hard times. They will naturally, after learning certain lessons from the 1930s well, not break much new ground. One reason being that if their policies didn’t work, they would be heavily criticized for experimenting. Thus while everyone pooh-poohs an inflation problem, I still worry about one. Seems like the consensus, which may be correct, among the minority expecting and talking about an inflation problem, doesn’t expect one until 2010 at the earliest. Keeps me thinking about that quote I printed here back on Friday, December 5^th, from Sir John Templeton: “It’s impossible to produce a superior performance unless you do something different from the majority.”

THE STOCK MARKET

Maybe we’ve started off on a new, lasting stock market rally as many now say. Maybe the November 20^th closing low and November 21^st intraday low did end this bear market or at least this phase of it and start us up and on a new mini bull market. But I don’t think we can determine that from these final days of stock market trading this year. This jig jag, saw-tooth modest rally we’ve had in December – the Dow remains down -2.8% this month, but up +13.6% from its closing low on November 20^th – still looks like just a time killer rally to me after stocks fell -6% in September, -14% in October and another -5% in November. So while I’m off on my annual winter beach vacation, I’m leaving my managed portfolios hedged with a slight long bias, still with my modest overall about 20% or less market exposure which I’ve carried since late last year. You remember late last year? At least as a lesson learned for the future, if for no other reason. After the stock market rallied back from its original car wreck in July, in what amounted to a head fake, false move, dead cat bounce and pretty obvious sucker’s rally, and a failed break out to new highs by the Dow and S&P (while the rest of the stock market refused to confirm).

Anyway, last week I ended the letter by noting that psychologically we should rally since bad news couldn’t drive prices down in recent days. Technically we had what could prove to be two months of base building everywhere I looked on the charts (but bases which could easily prove false). Fundamentally we even finally had low enough market valuations, like P/E ratios, to support a rally as well. But how about a catalyst? Well, let me offer up: (1) much lower gasoline prices which keeps our wallets and purses fuller and healthier, and (2) the good feelings anyone watching our president-elect making non-partisan, non-political, non-ideological selections for his cabinet, should feel. There may be a wellspring of good feeling, a sort of honeymoon psychological effect on investors, business, consumers and most all of us as we hope our new president can perform miracles. Schwartz View: Unfortunately no one man is going to remake America overnight. So, while keeping an open mind and watching all unfolding developments, for now I’ll back history which says this “worst financial crisis since the Great Depression” has to lead to an extended Papa Bear market, one which lasts at least a couple of years. Not just for one year, where we stand today.

PORTFOLIO STRATEGY

I hate to follow or even agree with some of what I’m hearing about going forward strategy, especially if such is espoused by those who were so wrong all this year. I’m speaking specifically about Bob Doll, now at BlackRock as their “Trillion Dollar” fund manager. I don’t want to pick on anyone but since he’s been leading the charge forward as stock markets collapse and getting all the face time doing such, I guess I have to. I start off very skeptical because my belief is that these big money managers are not going to get on TV and recommend anything before they and their clients get first crack at their thinking, ideas and recommendations and position themselves accordingly. I already wrote awhile back many old stock market books talk extensively about how big money always used to try to sucker the little investors. The age old technical Wall Street term “distribution” implied big guys needed little guys to unload their big positions on to when they foresaw a bear market ahead and thus put on a bullish face. It took much time to unload huge positions these large investors stockpiled so much frenzied excitement about the stock market had to be built up as big money sold. What better way today than Bob Doll coming on CNBC ubiquitously and always saying we are now in a bottoming process. He said that back in March and those who followed him are much the worst after the October panic crash. Anyway, that’s all secondary, although supporting, my main point. My main point is that Mr. Doll now says next year is going to be a good one for those taking on risk, not for those playing it safe. Again sounds good to me, at least at first blush. We all know what goes down the most generally can bounce tremendously when psychology changes. But do we really want to buy really risky investments in just the early part of the second year of a big, bad bear market? I say no. Bear markets of this size and scope historically have taken a lot longer than one year to work through.

Net, net, probably Mr. Doll will be proven correct about taking on risk, if one doesn’t factor in any time period. I’d guess risky asset classes will move fast when this bear market ultimately does end but do I really believe its going to end soon? No. And if we do have a 2009 mini bull market, say because stocks have fallen so much, then I’m not going to count on Bob and other institutional investors to tell me and us exactly when to get back out. No, starting off next year next week, I’d suggest still playing our cards close to the vest. Yes, play modestly for a continuing rally but look at it for now as just a bear market rally.

Happy Holidays & Happy New Year!

Richard

One Way To Handle This Bear Market

RichardSchwartz — Thu, 11 Dec 2008 14:53:00 GMT

SCHWARTZ STRATEGY DETAILED. The Principle of Proper Money Managment. Especially important during a bear market. I know many readers aren’t prepared to keep jumping in and out of the stock market, trading in other words, each time the stock market begins some type of rally. As I suggest. Many of you just want to make some long range investments and stay put thus it’s terribly hard to follow my in and out advice. But that’s also pretty hard to do – buy and hold right now -- since the near and intermediate term outlook is still so iffy. Sorry about that but I can’t do anything about it. Either you operate like Warren Buffett, buying down here with plans you can outwait any trouble ahead, holding for years if necessary. Or you fashion some type of middle ground, somewhere between buy and hold and trading around daily. So here’s one suggestion, along the lines of what I do every day.

Schwartz Daily. First, as I’ve long recommended, you hedge your portfolio. Starting with taking a Big Picture view. If you agree with me about the big picture, that since today’s economic and stock market predicament is the worse most everyone has ever seen, that this bear market will have to last at least another year, roughly two years minimum in total, then you add a couple bear market index plays to you overall portfolio with plans to hold them for some time, say throughout 2009. Obviously if you don’t hold any inverse ETFs or inverse mutual funds right now, you want to initiate them on some strength like possibly this year end rally occurring now. As soon as you can’t wait any longer or if you read here that this rally is nearing its end, you put on these inverse plays. Or hedges as I call them since I’m not trying to make a ton on this bear just avoid getting clawed up really badly. Again, or second, once that’s done you check each position each morning and see how they’ve done over the pervious trading day. You check after big up days, big down days and after modestly moving market days like yesterday. What you’re looking for is how your overall portfolio did versus the general stock market and how each individual long and short did. For example, yesterday my two inverse or short hedges both fell, obviously, because it was an overall up stock market day. My Short NASDAQ 100 ProFund (symbol SOPIX) fell -2.19% and my ProFunds Bear ProFund (symbol BRPIX) lost -1.15%. On the other hand my longs, ProFunds Consumer Goods Ultra (symbol CNPIX) rose +0.76% yesterday. Similarly my ProFunds Utilities Ultra (symbol UTPIX) rose +3.09%, my ProFunds Biotech Ultra(symbol BIPIX) rose +1.13%, while my ProFunds Telecom Ultra (TCPIX), disappointing, fell -3.68% yesterday. So third, you check out why any discrepancies show up and decide if you want to change the mixture or positions. Disclaimer! I hold small positions in the investments above but can and do change my positions anytime.

Two other obvious major factors are (1) your overall percentage invested versus your sidelined cash. I’ve been running most of this year about 20% invested, including my longs, shorts and non-corollary positions like whether I’m long or short the dollar, Treasuries and gold and 80% cash or cash equivalents. And (2) what percentages of each position you hold, for example my two shorts mow total about 5% versus my four longs totaling about 10.75%. So as you can easily note, I’m mostly in cash, about 84% now and what I’ve got in I’m positioned for a rally. But when I see no signs of a rally, I shift to leaning more short than long. What I would love to see are my longs doing well between now and the end of the year while my shorts don’t hurt me. Then a chance to take profits in my longs while leaving my outstanding shorts alone, let them keep running since overall we’re in a bear market. Summing up, numerous investors and traders operate this way. With the plan that their shorts will go up and their longs will go up as well. That’s the ideal anyway. Just another strategy for you to ponder and maybe adapt as your own. Good investing!

"No One Can Time The Stock Market"

RichardSchwartz — Tue, 11 Nov 2008 14:18:00 GMT

TECHNICAL VIEW. The Principle of Technical Analysis. I don’t want to jinx myself but I can’t keep quiet. Not after hearing the usual Wall Street mantra again this morning. That is, that no one can time the stock market so it’s always best to ride out its ups and downs. I mean this type of misleading & confusing information is one big reason why I started this stock market letter back some 18 years ago. Part of my motivation, to quote myself, was to “unveil the mystery surrounding the stock market.” I saw numerous misstatements and unfounded general beliefs which I just thought were plain wrong being foisted on the investing public, not large institutional investors but aimed at individual investors. After working as a stockbroker/financial consultant for 15 years, I realized that Wall Street kept nurturing the stock market’s mystery. Why? For Wall Street’s best interest. Why pay a stockbroker or brokerage firm big bucks if individuals could understood for themselves the market? No, only if individuals felt (and kept feeling) overwhelmed by the market’s workings would there be a need for advisors and a way to charge big fees.

Anyway, I don’t want to get off track. I just want to comment on the one line of reasoning which we’ve all heard repeated so often that most now take it as fact. That is that no one can call the tops or bottoms of bull and bear markets. We hear it from about 50% of the mutual fund managers, market strategists and others every time they come on TV. Many begin with something like: “Since no one can call a bottom, …” Not only does this perpetuate the need for market advisors it also justifies the roller coaster performance of these money managers. Hey, it takes the pressure off them, right? As long as they are doing about as well or as poorly as the overall stock market, then they are doing their jobs well. At least that’s the thinking.

But then what about all the traders out there? Why did hedge funds start then? If no one can time the market what about this whole cadre of people trying to outperform the market? And what about those fabulously successful speculators we hear about? Some do time the market correctly is my answer.

Schwartz View: I’m sure many others did as well so I’m speaking just for myself now. After studying the stock market for 35 years, all facets from timing to investment themes and much, much more, I was able to correctly identify last year’s market collapse as the beginning of a bear market pretty early on. In spite of those who say no one can do such a thing. And I stepped up, following my own reasoning and got Lucy’s 401k or 403b or whatever it is into 100% cash. Right before we went away on our annual Christmas beach vacation last year. And thus kept her retirement account from falling about in half! With my managed accounts, I followed generally the same path, figuring my top priority was protecting our downsides because the market was turning bearish. Since then I’ve been able to keep mostly to the sidelines, watching this bear market unfold, gather steam and keep on rolling. This in spite of hearing the “Trillion Dollar Man,” BlackRock’s Bob Doll, incorrectly call a bottom in March, Mad Man Cramer call a bottom in July and other bullish, skin-in-the-game advisors come on CNBC and say they are buying, that a bottom is near or building a bottom is a process and you’d better get in now “…since no one can call the bottom.” Well, the bear market continues and we keep seeing further and deeper declines. My sense, as I’ve been writing for months now, is that this bear market will last for at least two years or until at least next October simply because what’s hit us is the worst mess since the Great Depression of the 1930s. So why wouldn’t this bear market last at least as long as the last Papa Bear market, the two year long drop in 1973-1974?

Bottom line, while I don’t expect to call the bear market bottom before it arrives or to the day (except in hindsight) I believe with the tools, skill sets and experience I’ve now got, after studying the market’s primary trend, history, psychology, value, technicals, etc. for decades, I should be able to identify the bottom reasonably well. Part of my overall game plan entails trading most possible rallies so when one does prove to be the real thing, I’m in with at least one foot near the start. Then, as I see prices rising, I should be able to get in more heavily. Bottom line, I believe anyone who’s willing to put in the time and effort should be able to quickly identity tops and bottoms in the stock market, totally counter to what we always hear. Oh, one last point. Be careful of the fear that these always 100% invested advisors love to leave you with (just like dentists do). That is the mantra that if you miss the first days of a new bull market, you’re in trouble. Sure the first days up are normally exciting and big. But bottoms generally are retested, providing the sharp-eyed observer more than one reentry point. And bull markets run for years not just for a couple of days. So don’t worry, be happy, if you’re now 50% or more in cash on the sidelines. Just stay tuned here. Because one way to indeed miss the bottom is to lose interest in stocks during a long bear market. Go ahead, lose interest if you’re 100% invested now because you’re already in a bind. But don’t lose interest if you’ve played out this hand fundamentally correct. If you’re saved yourself a bundle by already going against the Wall Street mantra of staying invested “because no one can time the market,” then stay in touch with stocks for your reentry point. One good and easy way to do so is by just reading this letter each day. It’s only a couple pages long, doesn’t take much time to read, you’ll learn something new most of the time AND you’ll be aware pretty quickly, & ready to profit, when this market turns up.

Studying Similar Sharp Declines & Their Bottoms

RichardSchwartz — Tue, 07 Oct 2008 18:26:00 GMT

The Principle of Understanding History & The Principle of Technical Analysis. Written Tuesday, October 7th, 2008

OK, yesterday I heard one analyst, I believe it was Liz Ann Sounders, chief investment strategist for Charles Schwab say the recent sharp year-over-year (yoy) stock market decline is only rivaled by the year 1974 and two years back in the 1930s. I could make a good guess which years in the 1930s those steep yoy declines came but I went back and checked anyway because those are the years along with their stock market bottoms that I want to start studying, their charts and their economic, financial and psychological backdrops as well. All three years were big bad bear market years as yoy declines of -30% or more would have to be. 1974 was the year our last Papa Bear market ended, and was the second year of that bear market. 1931 was smack in the middle of that big Papa Bear (stocks bottomed May 1932 and in rallied the second half, preventing 1932 from making the list). And 1937 was the year the five year, first bull market after the Papa Bear of 1929-1932 ran out of steam and the economy ran off the cliff and we had a short but very severe Mama Bear market. (I distinguish Papa bear markets from Mama bear markets by their lengths, the 1937-1938 bear market lasting only one year.) A first, brief cursory review of those big down years is as follows:

· 1974. The total decline in the Dow came to -45.1% in just under two years. The stock market’s bear market ending was immediately preceded by a most severe leg down in stock prices, losing -27% in less than two months from early August through October 4^th. The ultimate bottom was characterized by the Dow Transports NOT making one last new low along with the Dow Industrials in early December. Schwartz View: Diverging in other words.

· 1931. The total decline in the Dow came to -89% and took just under three years, September 1929 to July 1932. 1931 came in the middle of that horrific Papa Bear market so that’s dismaying for us today. But, similar to the bottom in 1974, the 1932 bottom came after a grinding last leg down in stock prices. From March through July 1932, we saw an inexorable day-after-day, four-month decline totaling -54%. Whew! Schwartz View: Trading volume was the distinguishing characteristic of that market bottom, shrinking up noticeably.

· 1937. The total decline in the Dow came to -49% and took almost exactly one year. The bulk of the 1937 Mama Bear market occurred primarily during a sudden market collapse from August through December and encompassed another extended, depressing, sharp down leg of -40%. In October of this four-month leg down, trading volume spiked during a mini crash but that wasn’t the final bottom. Schwartz View: The bottom came on much reduced trading volume in March of the following year and prices didn’t really move up until volume again picked up, in about June.

SCHWARTZ SUMMING UP. My first, quick gleanings from reviewing past market bottoms after the three most severe year-over-year declines in stock prices, like one we're in right now, indicate we might look for anultimate market bottom to include: (1) a sharp leg down just preceding the bottom, (2) a divergence between the Dow and the Dow trannies and/or (3) sharply lower trading volume for some weeks before the ultimate bottom. Stay tuned for more to come while hanging tough.

Strategy for a New Leg Down

RichardSchwartz — Tue, 16 Sep 2008 14:18:00 GMT

TECHNICAL VIEW. Written Tuesday, September 16th, 2008

A New Bear Market Leg Down Likely Starting! Schwartz Strategy.

Right at the close yesterday, the Dow Industrials dropped sharply going from -400 points down to -500 points down, closing at 10,917.50, below its previous bear market July 15^th closing low of 10.962.50. The S&P 500 did the same, closing at 1192.70, below its previous bear market low of 1214.91 also set on July 15^th. Thus, after yesterday’s big down day, the Dow & S&P have both gotten back in sync to the downside with the Nasdaq Composite and S&P 400 Midcap, both of which closed below their previous bear market lows last Tuesday. The question is which way next. Is this breaking of support just a head fake, a false move, and stocks will ultimately hold around here? Meaning that these new, still modest new lows are just widening out the bottom end of the trading range we’ve been in since mid-July. Maybe if the Fed or government again rushes in on their white horses to save the day. OR is this the beginning of another leg lower in stock prices during this grizzly bear market? I suggest the latter.

Bear market corrections upward usually last from three weeks to three months and take the form of either a bounce, or if technically too weak to bounce, some sideways, killing-time price action. Earlier on in bear markets, upward corrections are likely to be just that, upward bounces, since many investors still don’t believe a primary downtrend has taken charge. Note our recent mid-March to mid-May, two-month bounce. But now, a few months later in this now widely-acknowledged bear market, when its more obvious that something is deeply wrong, we were only able to post a weak, one-month, July 15^th to August 15^th killing time sideways “upward” correction. Thus I make the odds high we’re now breaking lower.

Schwartz View: Yep, my guesstimate is that indeed we’re beginning another new leg down in stock prices. Just common sense alone tells us after the major convulsions and damage going on in the investment banking sector, the financial & economic backdrops are in worse shape than back in July. Thus lower stock prices should result as the market gropes for a new lower price level to make its next stand.

The next few days should tall the tale for sure about a new break lower or not, but if you agree with me, correct strategy is to again follow my Schwartz Rule: Move Early! That means moving today! Shorting something today. Whatever happens, up or down. Remember, when cutting back after any market index or individual stock tops out, the “first loss is normally the best and smallest loss.” Well, the same thing applies when buying or when selling short. The first early move is generally your best.

· WHY? So if you haven’t been able to follow through on my consistent, persistent advice to lower your market exposure since I first starting calling this decline a bear market last November, now’s another point in time to do so. I know, I know, many advisors on CNBC say it’s too late to sell now but I disagree. Please remember these are the same advisors who’ve been seeing bottoms each step downward and who have to always carry a bullish market bias. As I see it, the downside from here could be just as great as the -20%+ we’ve lost so far. I’ve been writing that for awhile now. And now a move to lower prices may be starting. Thus if you have previously cut way back, to 50% or less market exposure, I applaud you since I know it’s very hard to make the decision to sell anytime, especially after you’ve seen and felt your portfolio at higher valuations.

· WHEN? The other, second, fundamentally logical time to sell or sell short is in a day or two or three when the stock market bounces. Say if we go lower for the next few days, then bounce for a day or two. The closer to the July 15^th lows the better because old downside support, when broken, becomes new upside resistance.

· WHAT? As to what to short, that gets more sticky. Remember the marketplace itself, by money once more quickly flowing into US Treasuries, is lowering long term interest rates on its own. Thus rounding up the usual suspects, REITs, utilities and the other beaten up, battered down financials (which many still adamantly say bottomed out back on July 15^th) may not be the way to go. Lower interest rates should take some near term pressure off these interest-sensitive sectors. Better may be finding a way to short the real economy, namely those businesses that aren’t really financial in nature but that actually produce or manufacturer something tangible. That’s what I’m investigating today. To find some inverse sector funds and or ETFs which suit this purpose.

Papa Bear Market Downside Target

RichardSchwartz — Mon, 04 Aug 2008 19:16:00 GMT

THE STOCK MARKET

Hope camouflaging a water torture, drip-by-drip decline is one way of describing today’s stock market. The big problem with all the bottom calling a few months back by Bob Doll, BlackRock’s “Trillion Dollar Man”, by Mad Man Cramer last week and by Investor’s Business Daily (IBD) putting the “bull back in the box” last Tuesday and by the majority of Wall Street guests on CNBC is that they all continue to offer up hope to other investors who don’t really watch or track the stock market and economy closely. This continuous bullishness follows the historic pattern of investors not believing a bear market is even here and thus not noticing or ignoring the financial damage they’re occurring by listening to the experts, until somewhere near the bear market’s ultimate bottom. Finally, when they’re surrounding by negative news and can actually feel the economy turn really sour all around them, they take to not sleeping well at night, sweating profusely under the intensifying pressure and end up selling right at the bear market bottom along with everyone else. I’ve studied economic and stock market history and unfortunately I see that normal historical pattern playing out again today.

To make matters worse for the minority who are now waking up to what’s going on, we’re already morphed into getting only sideways stock market corrections upward, not rallies, which means to most investors that it’s too late to sell. As regular readers know I believe we’re still in line to lose as much or more than we’ve already lost so it’s really not too late to sell. It just takes some courageous decision making, terribly difficult today after investors have seen their double digit losses on their quarterly statements. But down the line sometime decision making time will rear it’s ugly head again. Selling then, at or near the bottom, will finally provide short term relief although long term regrets.

Schwartz View: In terms of a long term Papa Bear market downside target, in the S&P 500, the professional’s benchmark, logic says we should “retest,” or go as low, as the previous Mama Bear market bottom set back in October 2002 of about 770. From 1261 now, that’s about another 35% or more on top of the 20% we’ve lost so far.. That would take us to the bottom end of a multi-year trading range which already has two tops in place. About S&P 500 1550, the early 2000 peak to the grand bull market of the 1990s and the late 2007 peak of about 1575. And put us into a similar multi-year trading range to the one the stock market stalled out into lasting from 1966 to 1982 before it finally broke Dow 1000 to the upside. And confirm a number of theories floating around today. Big picture specialist Jim Rogers’ view that long term bull markets run for about 18 years, www.ComstockFunds view that the 1982 bull market really did top out in 2000, past top dog guru Robert Prechter’s Super Cycle technical peak and super global investor George Soros’s fundamentally-based belief that the 30-year credit expansion which was the engine driving the US economy, as we gave up our manufacturing domination, is indeed over. And most likely prove that Rogers’ recommendation of getting out of the US dollar was correct. Schwartz View: Near term we certainly could rally some, but I wouldn’t bet too much on such. Especially since my previous warning of a weak stock market period surrounding Northeast homeowners getting our winter oil heating bills has arrived. Friday we got the oil bill for our small townhouse. It was at a rate of $4.699 versus last year’s rate of $2.649, an increase of 77%. Meaning the cost of heating is going up from $1181 to $1907.

Monday Weekly Overview Sample Letter

RichardSchwartz — Mon, 28 Jul 2008 13:19:00 GMT

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Monday, July 28^th, 2008: Your New Paltz, NY SUNFLOWER update: A few sunflowers have popped but I noticed the farmer’s market has alternated its plantings so any time you visit you should see some. Just spectacular!

THE BIG PICTURE

Looks like one potential US and global leader gets it. Presumptive Democratic nominee Barack Obama, to shore up his lack of experience on the global stage, embarked on a global tour last week. And was again able to put his finger on the pulse of the world and his audience, exhibiting his knowledge of history and this particular critical point in time speaking at the historic Brandenburg Gate in Berlin. While he didn’t rock star the crowd, fine with me, it was good to see he continues his role as alienate no one, moderator showing again he understands all sides of issues and is committed to leading by example. While not denigrating any political party, say our Republicans, or country, say Old Europe. Thus there is hope that America will soon embark on a new direction, one of getting things done by bringing all parties together and then making logical and effective, not ideological, decisions, forgoing our previous path of fostering divisiveness in the world, between our two political parties and among the American people ourselves.

Schwartz View: Enough said. I always get negative feedback when treading in political waters. I do like presumptive Republican presidential nominee and American hero John McCain quite a lot but just feel we have to drastically change policies going forward, not follow a similar path. America needs to get it’s act together quickly as all long range forecasters have reached consensus, saying we’re on a downward slide, financially, politically, economically, socially. We just need to start cohesively tackling our problems.

THE ECONOMY

Numerous economists last week admitted that the US economy is weakening. Among them Brian Bethune of Global Insight, James O’Sullivan at UBS and Moody’s John Lonski. So, in spite of the US not posting two straight quarters of negative GDP growth, the old and easy definition of a recession, and one not used any longer by the National Bureau of Economic Research which calls and dates recessions but problematically many months late -- remember in today’s new globalized world we need to learn new economic relationships! -- it looks like a recession is here. And in my view is going to stay with us for quite some time. That’s because America has been moneying-over all near term problems for many, many years, thus postponing the always needed recessionary cleansing and efficientizing of the US economy, while we’ve also avoiding developing and implementing solutions to our long term ills, like our increasing oil dependency, our underfunded government pension plans, Social Security and former Fed head Alan Greenspan’s #1 concern, Medicare. America does have a bad habit of avoiding problems until they reach crisis state. Maybe that’s because our representative democracy has become so dysfunctional here in the US. I would suggest we start fixing things right there in Washington by first getting rid of lobbying which skews everything toward those with the money to get their voices heard. Even corporate America, who now realizes it’s entrapped by this self-perpetuating system, would like nothing better than to see lobbying go away as big business now has to carry and fund a large and increasingly onerous lobbying budget.

Schwartz View: All I’ve read recently has been about how there are so many inefficiencies corrupting our inherently great economic and social framework that it’s a wonder anything can get done. Such as the US having 600,000 lawyers while Japan has 15,000 (those figures were about 10 years back but obviously haven’t changed for the better). And all the broken marriages and unwed mothers costing America a fortune as well. It’s almost funny, after encouraging the rest of the world to move to free markets for decades, when the Soviet Union collapsed and showed the economic rot hidden there, the world finally started followed our recommendations. And economic success followed suit but that led to tremendous and widespread global competition, so it’s vital we get our own act together as soon as possible, to just keep up. Thus the silver lining to this current economic slowdown, a slowdown that isn’t responding to our normal response of throwing money at it, is that crisis is when change really does occur in America

THE STOCK MARKET

Stocks have again gotten ahead of themselves on the downside although not as much out of whack as at the first bottom back in mid-March. Figuring the Dow Industrials and S&P 500’s previous bull market tops were set back last October, after nine months of a bear market or at the recent July 15^th lows, we are down on average about 2.5% per month versus the historic average bear market monthly decline of 2%. So we could easily see a backing and filling trading range here and now or even a modest rally, the two normal ways bear markets correct themselves. Much government intervention has come together to force down the price of oil and thus commodities in general, prop up housing and consumer spending, keep the financial system from breaking down completely and holding interest rates way below the rate of inflation. So all this government stimulus has to go somewhere just as previous stimulus found places to bubble up. Plus new government props and controls historically have been able to put a temporary fix in place.

Still, over a period of time the stock market reflects the economy and things aren’t really getting any better there, despite Q2 GDP growth out this Thursday going to again be positive. In point of fact, the economy is continuing to get worse if one looks under the surface at signals like credit spreads, a rough definition being the difference in yield between US government bonds and non-US government guaranteed bonds, which remain wide. Or if we factor in historic trends which show that economic downturns tend to surface hidden problems which end up feeding on themselves. Today’s continuing wide credit spreads mean at some point MBIA & Ambac and Fannie & Freddie, the other 17 big financials which have also been taken off the allowed short selling list & all the other financials who’ve lost billions of dollars aren’t going to be able to hide things any longer and are going to have to really own up. So stocks remain iffy for now. And with the rug pulled out from under the remaining stock leadership in the stock market over the last two weeks, out from under energy, the energy complex and other commodities, any market rallies are going to be just technically based, say from an oversold position or short sellers being forced to cover. Sure, a rally may then feed on itself and last longer than bears think, but should ultimately roll over as data worsens.

Schwartz View: Technically then, we could be embarking on a summer rally and if so sharp traders with the courage to risk their monies in the propped up financials may be able to scalp the stock market. And other pockets of strength should or may show up (hopefully in the health sector as that is now my focus with my few longs) normally searched out and propelled along by momentum players.

PORTFOLIO STRATEGY

LONG TERM PORTFOLIO STRATEGY continues to be hunkering down until this big storm passes. I expect that to be longer than most government and Wall Street economists and market strategists believe or at least publicly state. Publicly state because we all know that bearish Wal Street analysts and economists ultimately get fired and that in the aftermath of the dot.com bubble bursting, we got some theretofore hidden insight into what analysts really think. I see widely-followed, economist Nouriel Roubini, formerly holding various high level economic advisory positions in government, believes the US and European economies are now sinking as last Friday he said Wall Street was in spin mode and that financial institutions are “… manipulating at will their earnings, and analysts [are] falling for this supreme baloney.”

NEAR TERM PORTFOLIO STRATEGY depends more on whether this two-week, fledgling rally proves it has legs or not. I’m using as a key gauge whether the Dow and S&P are able to close above their last Wednesday’s closing highs, Dow 11,632.40 and S&P 1282.19. If these key indices close higher, then we will have the definition of a new up trend in place, a series of higher lows and higher highs. Strategy then will be to favor the long side but with say with no more than 50% at most market exposure. Planning on a modest summer rally for a month or two, with strategy being trying to scalp some short term profits.

AS FOR INCOME INVESTORS, we’ve all gotten used to our income fixes after 25 years of income investing being easy during a bull market in bonds, meaning just riding the trend toward lower and lower long term rates, I know it’s a struggle for you all today. My best suggestion is to watch for weakness in income sectors, say in utilities, royalty trusts and even REITs, then strike. Only move in and in a small manner AFTER a sector has just been blasted. This gives you some profit buffer as primary extended downtrends many times have sharp sell offs after disillusioned investors finally give up hope and sell, right before they rally. This can get you in at unusually good prices, at least for the near and intermediate term.

INCOME IDEAS. Thus I would currently search through the utility sector as the Dow Utility Index has just fallen a sharp -8% over the last two weeks. Or take another look at my previous July 11^th, 2008 two energy income recommendation Cross Timber Royalty Trust (CRT) and San Juan Basin Royalty Trust (SJT), both haven tumbled hard with crude. Both go ex-dividend tomorrow, meaning today’s the last day to get in to collect the substantial August dividend (both pay monthly). Or finally, revisit my other income recommendation, back on July 10^th, 2008, of two large European pharmas, GlaxoSmithKline PLC (GSK) AstraZeneca PLC (AZN) paying moderate dividend yields of 4.4% and 5.8% respectively. You need to buy GSK today to be entitled to this quarter’s dividend and buy AZN soon before it goes ex-dividend (not declared yet but last year it went ex on August 8^th). Good income investing!

Have a great week!

IBD 100 Weekly: Two Ways to Profit

RichardSchwartz — Tue, 22 Jul 2008 13:22:00 GMT

IBD 100 VIEW. Usually I report to you the ‘new names’ in the weekly IBD 100 list of leading companies, those companies outperforming most other stocks in price and with good fundamentals and earnings and revenues. With the idea that there is a ‘first mover’ advantage in becoming cognizant of and familiar with these new companies before the crowd does, say before Cramer on MAD MONEY recommends them. A first mover’s advantage especially for those of you who will make the extra effort to go look them up and find out what’s driving them higher. Lot’s of time one can get on to the newest, latest fashion or hottest thing by doing some homework. I believe that extra effort can really prove illuminating and profitable. So, although I’m not recommending running out and buying a package of them in this bear market summer, below are this week and last week’s new names, some totally new and some rehashes, rejoining the IBD 100 list after being squeezed off it.

IBD 100 NEW NAMES (IBD dated Monday, July 21^st, 22008)

IBD Mkt Industry

Rank Symbol Name Price Cap Rank Business Line

18 EZPW EZCORP 16.78 694m 52 Pawn shops

43 CFX Colfax Corp 27.26 1120m 3 Diversified manufacturing; fluids, valves

63 ATVID Activison Blizzard 36.82 24,219m 57 Entertainment software (the old Activision)

68 SYUT Synutra Intl 30.57 1650m 164 Vitamins & nutrition – CHINA

79 MANT ManTech Intl 50.91 1774m 30 Enterprise software to US government

85 AIMC Altra Holdings 16.66 440m 3 Machinery; motion control products

93 BKE The Buckle 48.96 1500m 23 Retail; youth casual apparel

100 GIFI Gulf Island 43.16 614m 7 Oil field equipment

But today with the stock market mired in a bear market although maybe with it’s recent 2^nd steep leg down or decline just ended, let me add a second or different approach as well. That of capitalizing on IBD’s own offered up insights. IBD agrees we’re in a market correction but the weekend paper asks: “Which groups and stocks will emerge as the new leaders?” And then offers up a partial answer highlighting a few stocks to put on our watch list as possible new leaders and describes their current chart patterns; below:

IBD POSSIBLE NEW MARKET LEADERS

IBD Chart Review

5 MA MasterCard, Inc. 267.90 34,830m 52 Could be building right side of base

8 CF CF Industries 156.73 8835m 5 Four weeks into potential base -on-base

28 CLHB Clean Harbors 75.91 1771m 28 In 4^th week of possible flat base

42 CMED China Medical 46.04 1261m 70 Now shaping handle to Double Bottom

55 SDA Sadia 22.55 5134m 51 Quickly shaping right side of base

59 SXE Stanley Inc. 31.93 731m 59 Shaping handle to base started in January

Schwartz View: My plan, and what I’d recommend to you all, is to follow chart developments on the above possible new leadership candidates. This should give us a “2-fer.” First, some possible profits if these stocks do become market leaders as the first stocks up after any market decline usually perform very well. And second, some more study and thus understanding into how IBD analyzes bases. In that regard, I would recommend any & all books which William O’Neil, founder of IBD, has written or co-written. The market student can learn O’Neil’s CANSLIM strategy & much about chart reading too. And at this point, make sure you get his HOW TO MAKE MONEY SELLING STOCKS SHORT (2005) with Gil Morales.