Slider:
Bear market going from denial to concern stage. But the capitulation phase yet to come. Probably after a nice year-end bounce.
From Comstock Funds today:
"This bear market has now moved out of the "Denial Stage" which we have
discussed since the initial break after the first quarter of this year. The
average stock has been declining since April of 1998 and the pain the
momentum players are experiencing presently is extreme. The
momentum players are the ones who followed the markets narrow
leadership into the stratosphere in 1999 up through the first quarter of this
year. The strategy of "buying the dips" which has worked so well in the
past has now caused such severe pain (with so many of the narrow
leadership stocks down 70-80-90%) that the denial stage is finally ending. The next two legs down of a
typical bear market are so vicious that the denial stage will seem tame in comparison. When the Concern
Stage (which we are in now) and finally the Fear and Capitulation Stages set in, it will be so painful that
the typical investor will shun the stock market for years to come and the on-line day traders will never
trade stocks again. We suspect as this scenerio unfolds, the NASDAQ will have to decline to a minimum of
2000 while the Dow Jones Industrials target would be about 5000 and the S&P 500 approximately 700.
This could take place in one of two ways. The most logical, in our view, is for stocks to crash and wipe out
the speculative excesses within a couple of years. However, it is also possible that stocks could just
decline gradually over the next decade or so (with periodic rallies), ending up lower ten years from now.
This may sound unbelievable, but remember that the market, on point-to-point basis, went nowhere
between 1929 and 1954, and between 1966 and 1982. The market is actually a paradox in that it induces
the maximum number of investors to believe in the uptrend in force, then traps them near the top with
nobody left to buy. The current bubble was so exuberant and persistant that most bears were far too early
in predicting its demise, and many were forced out or else gave up voluntarily. However, a study of
financial history shows that every speculative bubble ends badly, without exception, and there is no reason
to believe that the current episode is any different. This means that the market is likely to fall not just to
reasonably valued levels, but far below, as at first, the speculators throw in the towel, and later, even the
so-called long-term investors panic and give up. We are now only at the very beginning of this phase." |
