Beware of bears
One Dow watcher says average's close Tuesday makes bear market official
March 20, 2001: 7:53 p.m. ET
NEW YORK (CNNfn) - The Dow Jones industrials finished at 9,720.76 Tuesday, down about 17 percent from its all time high, and one man who may follow the Dow closer than anyone said that number makes the bear market official.
Richard Russell, editor of the Dow Theory Letter who has followed the average for more than 40 years, told CNN's Moneyline the Dow closed below an important milestone Tuesday, its low for the prior year.
It's the first time the Dow has closed below its low of the prior year since the bull market began in 1982. The broader S&P 500 index dipped into a bear market territory – generally defined as a drop of more than 20 percent from a market high - earlier this month while the tech-heavy Nasdaq has been in a bear market since last year.
Russell declared the bull market dead and said the Dow – which plummeted 238.35 points in reaction to an interest-rate cut from the Federal Reserve - is headed sharply lower from here. And his track record for prediction is pretty good so far.
In June of 2000 Russell described the three stages of a bear market.
The first stage is attrition, as individual stocks plunge but the averages hold up. Investors saw Lucent (LU: Research, Estimates), AT&T (T: Research, Estimates) and Microsoft (MSFT: Research, Estimates) break down one by one.
Russell said we are currently in the second stage, when the entire market falls as earnings and business conditions decline and investors begin to sense something is wrong. This stage lasts the longest, Russell said.
The third stage comes when investors give up on stocks and extreme fear prevails.
According to Russell this is when the bear market ends and a new bull charges forward. But he added a bear lasts about one–third 1/3 to one-quarter as long as the bull, which could mean a few more years of the current conditions. |
