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.

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Papa Bear Market Downside Target