On Wall Street: Beware of the sucker’s rally

[w¡n9Nµ7 §£@¥€r 123]

The Bull Market Express may really be pulling out of the station, but Wall Street’s trains have a nasty tendency to derail just as passengers jostle for seats. Most recently, the S&P 500 soared 24 per cent over seven weeks ending in early January, only to plunge to a new low. It was a fairly typical sucker’s rally and bear markets often need more than one to create sufficient disillusionment for a definitive bottom.

The 2000–2002 bear market had three, with average gains of 21 per cent in the Dow Jones Industrials over 45 days.

The granddaddy of all bear markets, 1929 –1932, had six false alarms with an average gain of 47 per cent. And Japan’s ongoing bear saw the Nikkei rise by at least a third four times in its first four years with 10 more false dawns since then.

Bear markets typically end with a whimper rather than a bang, casting doubt on the latest recovery according to Hussman Econometrics, which analysed numerous US market bottoms and bear market rallies. With the exception of the 1987 crash, the month before the lowest point of a downturn saw a gradual descent. By contrast, bear market rallies were preceded by steeper declines and had sharper rebounds. Another characteristic of bear market rallies has been modest volume on the rebound compared to the decline. The current recovery fits the pattern of bear market rallies in terms of volume and the “V” shape of the trough. Analysts at Bespoke Investment Group noted that there have been only seven other periods in the past 110 years with rallies of similar magnitude for the Dow. Three preceded the Great Depression, three came during the Depression and one in 1982.

...

Stocks also become incredibly cheap before major bull markets begin. Yale University Professor Robert Shiller notes that all four big bubbles of the 20th century saw stocks exceed 25 times cyclically-adjusted earnings and trough between 5 and 8 times. On this measure, the 2000 bubble never fully deflated and even the recent low did not breach 11 times.

http://www.ft.com/cms/s/0/158f174a-3bed-11...144feabdc0.html

[peejay 327]

So...what are you doing with the family fortune AJ?

[w¡n9Nµ7 §£@¥€r 123]

So...what are you doing with the family fortune AJ?

I'm sorry?

[웃 910]

Stocks also become incredibly cheap before major bull markets begin.

Incredibly cheap prices:

1) Citigroup momentarily under $1 (97 cents) in March 2009 --- ($55 stock in June 2007)....current price over $4

2) Ford at $1.01 (July 1982 price)....current price over $6

3) Bank of America at $2.53 (January 1983 price).....current price over $14

4) DryShips Inc. at $2.72 in March 2009 ($110 stock May 2008)...current price $8

5) Las Vegas Sands at $1.38 in March 2009 ($140 stock October 2007)...current price $10.50

Other highlights:

1) Oil goes from under $33 a barrel in January 2009 to $58.50 at present

2) Dow Jones Industrial Average currently at 8,575 from a 6,547 low beginning of March (+31% in 2 months)

3) S&P500 currently at 929 from a 676 low (+37.4% in 2 months)

Edited May 8, 2009 by Confucian

[Ban Hammer 13,346]

So...what are you doing with the family fortune AJ?

he's keeping it tucked between his legs.

[scandal 951]

On the technical side, much of what we're seeing now is a short squeeze. The short interest was immense before this rally and they've had to buy the whole way up, accelerating the rise. Once they're through we'll see the air collapse back out of the balloon.

On the fundamentals, conditions still suck. Consumer spending isn't able to drive growth, earnings are #######, and businesses are not interested in replacing inventory.

[I AM NOT THAT GUY 5,715]

Yep. I am idling until the DOW hits 9400. But, it was nice to get the May 1 statement, and see about a third of my losses have been recouped. Foreign holdings are still doing better than US stuff, partly due to the discount on the dollar. On the bright side, nobody has to pay retail anymore for that major purchase. Salesmen are willing to deal. I beat a salesman down on a used truck, and just beat down the tire dealer on a set of four tires. Things are still slow, so don't be afraid to ask, or move down the road to the next guy. Traffic was almost summer like for this weekend. Maybe this will be a good summer after all.