Online Stock Trading | 37-38 vs. 08-09

37-38 vs. 08-09


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Posted this morning at BigWaveTrading.net:

I sure did hear a lot of chatter yesterday, folks, a whole lot of talk.  “The Base Trio” (Obama, Bernanke, Geitner) were playing men-about-town, sending the pundits off and running.  And, in the end, what did it all amount to?  As the former Prince of Denmark so cleverly put it: “Words, words, words.”  Whether it’s President Obama, Chairman Bernanke or Secretary Geitner, it’s all just words.  What really matters is what the market, the collective genius of millions of investors worldwide, has to say.  And you don’t need a dictionary to figure that out, either…just look at the charts.  Yet these pundits would rather hear themselves talk.

Trust me, the last thing I want is to get into some lousy debate over what should be done about the economy.  I’m a trader.  Being a polemicist is simply a distraction, albeit a sometimes pleasant one.  As a trader, though, arguing balls and strikes makes little sense.  Just play the game.  And that game, in case you didn’t know, has been to short stocks and short big.

Having said that, you’ve got to believe that we’re in the late innings, don’t you?  I mean, here we are lower 11 out of the last 12 trading sessions on the S&P 500, NYSE and Nasdaq; 13 out of the last 16 on the DJIA.  Don’t even get me started on the S&P 600 or Russell 2000: both sold off on heavier volume.  Just 2% -yes, that’s right, 2% of NYSE stocks are trading above their 200 day moving averages.  New Lows slaughter the New Highs day in, day out; still, the put/call is below 1.00, according to Investor’s Business Daily.  Come on.  Time to rally, right?  By no means am I saying “Say hello to your new Bull Market, my friends!” but, for crying out loud, rally already.  So what if it’s weak and only for a few days/weeks?  Just rally.  I’m starting to worry.  Aren’t you?

“Will we follow the 1937-1942 market?”

08-09 Market

37-38 Market

Good question!  After that 40% fall in late 1937, the market went nowhere till the Ides of March, 1938; from there it fell 22% (sound familiar?) before finding a bottom on March 31st.  A 4% rally on low volume that occured on April Fools’ day turned the tide, though.  I can only imagine what the bears were saying.  Be that as it may, the market rallied to the 50 day moving average, meandering there until huge accumulation popped up in June.  This produced a choppy 40% rally into November of the same year. From there, however, it simply rolled over until in September of 1939 huge upside volume came back into the market. Still, it just couldn’t get above that high set the previous November. It was flat as a pancake, in fact, for the next 8 months until a sell-off in May of 1940 dropped the market like a bad habit: 25% in about a month, though it held above the March ‘38 lows. It rallied from there, only to roll over once again in November. It tried to rally once more but lost it, this time breaching the March 1938 lows in April of ‘42. However, just eight trading sessions later, it finally found the true bottom. After that, it was off to the races!

As it stands today, though, there’s no let-up to the selling.  More than that, it appears rather neat, organized.  Just a constant, unremitting pressure pushing equities lower.  This has resulted in a very weird market wide torpor, an almost resigned disinterest.  It’s as if market participants are punch drunk, without sense enough to protect themselves.  This lack of fear is pretty frightening, if you ask me.  Why?  Because, like a stressed levee, this market could very well crack and break, resolving itself in a deluge of panic selling.  This would make sense if you believe, as I do, that there are large funds unwinding significant positions as fast as they can without causing a rush to the exits.  This doesn’t at all negate the fact that money presently on the sidelines might be put to work at some point to scoop up what it perceives as “values” that squeeze those unwise and greedy shorts who have overextended themselves.  This could very well cause a quick and not insignificant rally.  Don’t believe me?  Well, the top ten percentage increases in the Nasdaq all occurred during the last two bear markets:

1/3/01:        14.17%

10/13/08:     11.81%

12/5/00:       10.48%

10/28/08:     9.53%

4/5/01:        8.92%

4/18/01:       8.12%

5/30/00:       7.94%

10/13/00:     7.87%

10/19/00:     7.79%

5/8/02:        7.78%

So you see what can happen.  The point is: whatever the move, it could be sharp and violent.  So stay alert.  If you got short when the getting was good, no doubt you have decent profits.  Consider booking some.  And should you get a big plunge in a stock that you’re selling short, cover.  Take the gift.  Either that or get your head examined.

John Ward

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Comments

2 Responses to “37-38 vs. 08-09”

  1. Bear Market Rally | Market Speculator on March 11th, 2009 2:59 am

    [...] are We About to Crash – March 10th, 2009Sitemap – March 9th, 2009A Shortable Rally – March 5th, 200937-38 vs. 08-09 – March 5th, 2009The Tale of a Tail – February 26th, 2009 Share and [...]

  2. Bear Market Rally : Monster Stock Trader on March 11th, 2009 1:56 pm

    [...] I just got back tonight from a short vacation but I wanted to post a quick note. First of all, I picked a great time to get away, no doubt about it! I’ll tell you why: I covered a large chunk of my shorts before I left. Though there were a number of reasons why I covered, one big one was that I just wouldn’t be able to stay on top of the market while I was away. I was going to be skiing the whole time. So I played it safe and booked profits, whittling down the size of the short, if not covering it completely. Another reason why I covered I gave on March 5th http://www.market-speculator.com/2009/03/05/1025/ [...]

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