Tuesday, February 2, 2010

Our Thoughts on the Bear Market Pause Thus Far.

Well, the Dow didn't quite break above the resistance lines by the end of the day yesterday like we supposed - however, vindication!  First candle of the morning and up up and away it went.

Well, perhaps not "up up and away", more like sauntering up a rolling hill.  But the point is there - all major indexes moved in-tandem (et al minus the USD of course, which is virtually the only thing that will be moving counter to the bear market, as we have been saying for months).

Here's the latest forecasts on the S&P500 (we thought we'd switch over from the Dow for today and look at broader measurement).  The retracement might actually have ended butting right up against the primary resistance line (double top a few days ago before the final low).  The number one scenario we are looking at is a spike up at or near the open to breakout, then a quick retracement below the line to resume the bear market.

Secondary scenario is a continuation of the slower, steadier upward move, which could take us up to two different ideal support levels.

Ideal stop-out is listed on the chart.

Gold and silver should follow the markets, and at this point, a day in which all markets make a decent low for the day while the USD rallies is a strong indicator that the major downtrend has resumed.  This portion should be faster and of greater magnitude than the last, as more positive sentiment is wound out of the market particpants.
Financial advisers the globe over are still "long-term bullish" on stocks (would you really expect anything different from the guys selling you long-only mutual funds?), and citing that this is a much-needed correction so that stocks can resume their bullish run.

Unfortunately this mentality is prevalent in the initial parts of a major downturn - remember what people were saying a month or two in after the 2007 top?  Did you know we had just witnessed the highest stock prices we might see in over a decade?

We'll be back for more analysis tomorrow.  Have a good night!



  1. Derek,

    Do you believe we will test the March lows or sink even lower?

    I was caught off guard in March because I believed that the DJIA would bottom after losing 80% of its value (2800). My plan was to begin opening long positions at 4000.

    My 80% drop from the top prediction was based on how low the DJIA fell in the 1930's, how low the Nasdaq dropped from 2000-2002, and how low the Nikki has fallen from its top.

    Please let me know your thoughts.



  2. We are forecasting a lower-low than last March, however we could see extremely wide range-bound action that takes place over several years whereby the major indices would bottom close to last March's low and then retrace again with major gains upward.

    However if this scenario plays out it will most likely be contracting, and fairly easy to identify early. This is some ways off, however, and we recommend being short and taking advantage of the opportunity, until we get closer to the bottom.

    Also, keep in mind that the Nikkei took many years to fall to it's major lows, and the US indices are not quite at that bear-market maturity level. There is still much more negative sentiment waiting to affect these markets in the months and years ahead.


  3. Derek,

    Thanks so much for replying to my message.

    I'm glad I discovered you on the kitco website.

    Take care,


  4. Derek where else can i follow you?