Putting Money Where Your Mouth Is
Dave Hunter, chief market strategist at Kelly & Christensen, a small brokerage firm on the floor of the New York Stock Exchange, has long viewed the Fed as being behind the curve, recently suggesting its "misguided policy had us heading into the worst economic downturn this country has experienced since the 1930s."
But the record amount of liquidity the Fed has injected into the system in the past week "is as close to a guarantee as you can get in this business that a big upside move is just around the corner," Hunter commented today. "I do think Greenspan and O'Neill could have shown more of a sense of urgency to show the markets they get it. Fortunately though, unlike the reassurances Greenspan has offered throughout the past year, this one is backed up by an unprecedented amount of new money into the system [which is] much more important than jawboning."
The ever-elusive bottom is rapidly approaching, the strategist said, suggesting today's losses were an expression of the market's "need to finish discounting the bearish view and all the fallout from last week."
Because this "final selloff phase is a vertical decline" it's impossible to determine when the actual bottom arrives until after the fact, he continued. But "because of the massive liquidity injection, the market will have a V-recovery mirroring the decline. So if you buy ahead of the bottom by a few days, you'll recoup any losses very quickly."
Of course, that assumes investors were able to avoid the losses this week, much less in the past 18 months, and have cash on hand to buy.
Still, one could argue that elements of a bottom were evident today in the reportedly forced selling of 135 million shares of Disney (DIS:NYSE - news - commentary - research) by the Bass family, in conjunction with the market's downturn amid frightful market internals.
The more the market falls, the steeper any reflexive rally is likely to be. But those contemplating a V-shaped recovery should consider the following: In the four days since trading resumed, the Dow has fallen 1229.23 points, or 12.8%, while the S&P has lost 108.05, or 9.9%, and the Nasdaq 224.45, or 13.2%.
Given that a fairly substantial advance is necessary just to get back to the pre-Sept. 11 levels, a W-formation -- where the first rally attempt is met by another downturn -- is looking more and more likely.
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