Daily Investment Interpretations

October 31, 2008

2008-10-31: The markets climbed again today. The Nasdaq gained 23.43 (1.32%) to 1,720.95, the Dow added 144.32 points (1.57%) to 9,325.01, and the S&P inflated 14.66 points (1.54%) to 968.75. The VIX fell to about 60. Oil rose $1.85 to $67.81, while gold fell $20.30 to $718.20. Stocks posted their worst month in decades in October. There is some sense that we may enjoy a year-end rally, but the pundits I read are more than convinced that it's time to Take Profits and Get Out!. Kevin Depew, in an excellent article, Five Things You Don't Want To Know, says, 
"(2) I believe the magnitude of this bear market is far greater than [the]2002 [bear market] but is being vastly underestimated by policymakers and investors." 
    His article quantitatively supports his assessment.
    Mr. Depew suggests a target of 1120 on the S&P 500 for this current year-end rally (about 15% above tonight's close--not all that great considering that at 968.75, the market has already risen 13% above Tuesday's opening of 848.92 (in four days), but in his view, the situation is highly dangerous, and this rally represents a selling, rather than a buying opportunity (unless you want to gamble on trading the rally). In 2003, a peak was reached about three months after the intermediate bottom. For us, three months would correspond to the last week in January. Probably the best bet for us would be to gradually sell along the way.
    Mr. Depew has produced another chart comparing the current market behavior with the 2003 market pullback (see below). Note how fast and far the 2008 market decline has been compared with both the 1974 dip and the 2003 valley.