... another interesting take from Ken Fischer at Forbes Magazine ... although I think I would have to see a few weeks above 1250 or 1300 before I might think the bear is over ... 1250 would be 50 % retracement from the drop from the peak around 1550 to the low around 950 ...
... Note: the S&P 500 Index (the $SPX) closed at 1139.45 on November 30, 2001 - after it closed below 1130 again on Wednesday, it has now closed above 1130 for two consecutive days ... Ken Wilson
Bottoming Out Kenneth L. Fisher, Forbes Magazine, 12.10.01, 12:00 AM ET
The year-end Investment Guide presents a great time to assess the overall market and where we are headed next year. I've been fully bearish throughout 2001, starting in January. The spring 2001 rally caused many to turn bullish. Not me. In the Sept. 17 issue (which was in your mailbox two weeks before the issue date) I expressed confusion that a market bottom was taking longer to arrive than I first envisioned. I then said the bottom might not be "until the end of the year or, heaven forbid, until early next year." I reiterated my rule about avoiding being bearish for longer than 12 months. Because I turned bearish at the outset of 2001, that year-end deadline is approaching.
So start buying soon, right? Longtime reader Graham Munro of Toronto e-mailed asking about how to allocate his investments now that it's time to invest again: value versus growth, country weights, etc. I advised Munro to slow down. It may be time to break my 12-month rule.
Let me begin by quoting from my Apr. 24, 1995 column: "Never stay bearish longer than 18 months; 12 months in any but the most extreme situations. Bear markets last about a year. If you are bearish and prices don't fall in a year, you are obviously seeing ghosts. If you do hit it right, and prices fall, force yourself back in after a year. You may not hit the bottom but will have missed plenty of the drop and won't miss the next bull rise." Well, until very recently, I've been right.
And this is an extreme bear market, by any measure, lasting, as it has, 21 months. The bull market ending March 2000 was the second longest of the 20th century, exceeded only by the 1942-61 bull. Thus it isn't shocking to see a longer-than-average bear market following. Among the other weird factors present now that make things different: a President not elected by popular vote, the catastrophic terrorist attacks, the disruptive euro conversion and the long time it took for negative sentiment to spread wide among investors.
Despite the anomalies, you have to trust that historical patterns will prevail. This bear market is already 21 months old. Very old. Old bear markets burn themselves out. Price declines and time eat away positive sentiment. Only when positive sentiment is gone can the market reach a bottom.
Western markets do not like to be down three years in a row. And after huge down moves the markets reach the point where even the worst pessimists can't justify lower prices. As a result, next year will most likely have a positive return. But it may well have a few negative months first. That's why I'm expecting the bear market to continue for a while. I envision this bear market may be running out as late as June. Maybe and probably sooner.
Of course, you can't calibrate the bottom's arrival precisely. I don't mind some risk of slightly missing the bottom. Meanwhile, I'm content to remain bearish. Too many investors still remain optimistic for me to expect a near-term bottom.
Nevertheless, good investors must always ask themselves: What if I'm wrong? The trick is to avoid being stubborn. There are three signals that will show me I'm missing the market's recovery. Late in a bear market is one juncture where I evoke technical analysis, albeit in a very limited format.
I've got a phrase describing this approach: Three strikes and I'm in. If the S&P 500 climbs past three barriers, which the technical analysts call resistance levels, then it isn't just a sucker's rally. My bearishness would then be wrong. And I'll be back in.
The S&P, as I write, has been struggling to rise above 1100--which has been acting like a ceiling. That was last spring's low, before the sucker's rally. Getting past 1100 is the first step.
The second? Chart the fizzling of the rally in May through the market low point after it reopened in September, postattack: It fell from 1320 to 944. Recovering half that drop would be very odd for a short-lived rally at this late stage, implying a new bull is under way. So if the market rises much above 1130, that will be the second strike. This needs to last several weeks.
The third? Note that the market spent vast time this summer bouncing around 1200. Moving above 1200 for several more weeks is the third step. If I get back in before the market tops 1200 I won't mind missing the bottom by a little.
Right now, though, it's unclear if the market has the strength to surpass these mileposts soon. I'll publish my 2002 forecast in late January. Until then it's best to remain maximally bearish and defensive.
Kenneth L. Fisher is a Woodside, Calif.-based money manager. Find past columns at www.forbes.com/fisher.
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