Roubini on the Dead Cat Bounce in the Market

It is déjà vu all over again. We have already seen this Groundhog Day movie at least six times over and over again in the last year or so: the market starts to rally – this time around about 8% in a week - and the chorus of optimists starts to say that this is the bottom of the economic and financial crisis and that we are at the beginning of a sustained stock market rally that signals the true end of this bear market.

Even before the latest bear market rally started last week I wrote the following on March 2nd:

Of course you cannot rule out another bear market sucker’s rally in 2009, most likely in Q2 or Q3: the drivers of this rally will be the improvement in second derivatives of economic growth and activity in US and China that the policy stimulus will provide on a temporary basis: but after the effects of tax cut will fizzle out in late summer and after the shovel-ready infrastructure projects are done the policy stimulus will slack by Q4 as most infrastructure projects take year to be started let alone finished; similarly in China the fiscal stimulus will provide a fake boost to non-tradeable productive activities while the traded sector and manufacturing continues to contract. But given the severity of macro, household, financial firms and corporate imbalances in the US and around the world this Q2 or Q3 sucker’s market rally will fizzle out later in the year like the previous 5 ones in the last 12 months.

Read Nouriel Roubini's full comment--

Reflections on the latest dead cat bounce or bear market sucker’s rally

Subscribe to All American Investor via Email

Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now

S and P 500 Current Bear Market (Chart)

This is a fabulous chart from dshort.com. The chart shows all the drops and rallies dating back to the S and P 500 market top on October 9, 2007 at 1565.15 (closing prices). Click on the chart for the bigger--dshort view.

Subscribe to All American Investor via Email

Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

Follow All American Investor on Twitter
More from All American Investor

• Systemic Risk Defined--Too Big to Fail


• Ray Dalio on the current state of affairs in the market


• Roubini Predicts U.S. Losses May Reach $3.6 Trillion


• Six Errors on the Path to the Financial Crisis


• Who Caused the Financial Crisis?


• Option ARM--The Toxic Mortgage


• Debt Binge--The Perfect Financial Storm


• Warren Buffett's Annual Letter to Investors (Cliff Notes Version)

Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now

Market Capitulation are Mutual Funds Next?

Rumors are starting that a couple of mutual funds are in trouble. I can't confirm or deny at the moment.

Earlier this week I wrote about the increase in investors calls to both Vanguard and T. Rowe Price. See Investors pull $33 Billion out of Market.

When investors get scared, and they can't take it anymore, they often dump all their stocks. A form of the madness of the crowd--they sometimes do this in unison. Imagine 100,000s of investors all pushing the panice button at the same time. There are somewhere in the neighborhood of 88 million investors in the United States.
Could we be on the verge of a market capitulation?

See: Market Capitulation Means Big Opportunity to Make Money and S an P Support 659 and dropping, Market Capitulation?

Subscribe to All American Investor via Email

Bob DeMarco is a citizen journalist, blogger, and Caregiver. In addition to being an experienced writer he taught at the University of Georgia , was an Asociate Director and Limited Partner at Bear Stearns, was CEO of IP Group, and is a mentor. Bob currently resides in Delray Beach, FL where he cares for his mother, Dorothy, who suffers from Alzheimer's disease. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. His content has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, BlogCritics, and a growing list of newspaper websites (15). Bob is actively seeking syndication and writing assignments.

Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now

A Tale of Two Stocks Intel and Apple

From time to time I like to go back and take a historical look at stocks. I am thinking about buying some Intel. I also decided to look at Apple.

If you look at the Intel chart below you will notice it was trading in the $15 a share area back in 2002 (after a high around $75).

At the same time in 2002, Apple was trading around $8 a share.

So where are they now? Intel is trading around $13 a share, and Apple is trading around $90 a a share.

I guess this shows that if you buy good stocks you'll make money in the markets (unless you bought Apple at $200).

Which is the better buy right now Intel or Apple?

clipped from charts.barchart.com clipped from charts.barchart.com

Stock Market still under extreme pressure--25 year look--Chart

The chart below spans twenty five years for the S and P 500. Each bar is one month.

I have been writing for two weeks about the downside range expansion in the market (see previous posts). The range expansion is still in force. Last time, I mentioned that the market rarely closes lower 7 days in a row and it was due for a rally from the 741 area. The rallies which usually last two days came and went like the weather in Amarillo.

I want to issue a major note of caution here. The formation above could be signaling a market capitulation. Think about it like flushing a toilet. You know what goes down the toilet=, but then the bowl fills right back up. My guess is, if flushed it will be a great opportunity. Markets rarely capitulate, however, when everyone is looking for it.

A look at this long term pattern shows that the market is extremely vulnerable. The fundamental news, especially the size of budget deficit continues to weigh on the market. The only question now is do we go down slow or fast.

For today, the S and P will find good support on any thrust under 732. So don't get nutty with the short positions.

This will be the third straight week down and sixth out of the last seven. This indicates the market is due for a good rally soon. But from what level? New shorts at this level don't make much sense.

clipped from charts.barchart.com

Subscribe to All American Investor via Email

Follow us on Twitter

Bob DeMarco is a citizen journalist, blogger, and Caregiver. In addition to being an experienced writer he taught at the University of Georgia , managed on Wall Street at Bear Stearns, was CEO of IP Group, and is a mentor. Bob currently resides in Delray Beach, FL where he cares for his mother, Dorothy, who suffers from Alzheimer's disease. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. His content has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, BlogCritics, and a growing list of newspaper websites (15). Bob is actively seeking writing assignments and syndication.

More from All American Investor

Ray Dalio on the current state of affairs in the market

Homebuyer Credit Won’t Stabilize Market, Analysts Say

Roubini Predicts U.S. Losses May Reach $3.6 Trillion

Six Errors on the Path to the Financial Crisis

Who Caused the Financial Crisis?

Option ARM--The Toxic Mortgage

Debt Binge--The Perfect Financial Storm

Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now

15 Great Stocks From the Great Depression

I ran across this interesting article. It includes the 50 best performing stocks from 1932 to 1954 by cumulative total return. Lately, I find myself thinking we are near one of the greatest investing opportunities of a lifetime. There is little doubt in my mind that once the market capitulates there will be some stocks you can buy, own them for twenty years, and make a future. I am also thinking hard about which international stocks will be big winners of the future. China?

I also want to remind people that the final big lows in the depression market were not made in 1929 but in 1932. The Dow did not regain its pre-crash level until 1954. Same story in the period from 1966-1982. Does this mean we are in for 20 years of sideways action in the market?

Can you make money after the final capitulation in a bear market? Check this out.

Electric Boat: Unsinkable Submarine Maker

Cumulative Total Return 1932 to 1954: 55,000% (Rank in Top 50: 1)
Where is it now? A unit of General Dynamics (GD)

Subscribe to All American Investor via Email

Read on and enjoy.

15 Great Stocks From the Great Depression