Daily Investment Interpretations

February 27, 2009

2009-2-27 Today, the Dow and the S&P 500 notched new closing lows below  their November 21st intra-day lows, suggesting a little more strongly that we're in a new down-leg of this major bear market: Stocks pushed to newer bear-market lows; banks sold or shorted. If we think that another bear-market bottom will come within the next week or two, it follows that the economy won't hit bottom before September-to-December of this year, rather than late May through late August.. That would mean that the economy would continue to deteriorate for at least another six-to-nine months.
    The markets dropped further today, by
-1.66% for the Dow to -2.66% for the S&P 500. The NASDAQ lost 13.63 points (-0.98%) to close at 1,378,. the Dow gave back 119.15  points (-1.66%) to close at 7,063, and the S&P 500 divested itself of 17.74 points (-2.66%) to end at 735. Oil was essentially unchanged at at $44.76 a barrel, and was gold, at $942.50. The VIX was up slightly at 46.35.
    The VIX closed today only
3 points higher (at 46.35) than it did on February 6th (when it ended the day at 43.37), while the S&P 500 plummeted 134 points from 869 on February 6th to 745 today (February 27th). To my untutored eye, that looks like a lot of complacency in the face of record-breaking new lows.
    Mark Hulbert has just published a somewhat different view of what's happening, in: Making the bullish case. He released this before the markets opened today so this article doesn't reflect today's market action. He observes that the
Wilshire 5000 is more representative of the stock market as a whole than are the Dow and the S&P 500, and the Wilshire 5000 hadn't yet broken below its November lows. Even after today, when it closed at 7,474, it's still a hair above its November 20th close of 7,471.5.
    Meanwhile, there are brokerage spokesmen who are arguing that this marks a new bottom for this bear market, or that the indices may rebound and that this dip may constitute a successful retest of the November lows (The
NASDAQ hasn't dropped below last November's low.)
"'We continue to get hit on a daily basis by very bad economic news and the markets are trying to put in a stand here at the November 2008 lows,' said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.", Sharp contraction. But this I believe: today's market action doesn't comport with a market bottom. The bulls are still hopeful, and the markets slide down a slope of hope. There was certainly no capitulation of the bulls today.
    Some of the less-sanguine articles are:
Banks and economy to keep bears' grip on stocks, Short month, bitter market, and The market's long road back. The latter article argues that, based upon a study of similar bear markets, it will be years before the indices reclaim their 1987 highs.
    Another article, Will inflation emerge victorious?, looks at the history of inflation, and concludes that
inflation is going to trump deflation, later if not sooner.