U.S. stocks rocket higher in widespread advance
Maria's Bottom
While no one knows when a bear market bottom is made, the last stage of a bear is called capitulation. After the fact, innumerable signs of the capitulation will be pointed out. Many of these signs will be the same as in other bear capitulations - high VIX, extremes in put/call ratios, generalized malaise with stocks, etc. Some of the signs will be unique. If (and at this juncture, it's a big if) last Tuesday marked a bottom, I would propose the bottom be referred to as Maria's bottom because
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certainly indicates capitulating resignation.
Since the lows of last Tuesday have not been breached, the question is:
Can we hold Maria's bottom?
The bears say this will be hard; the bulls say if we can just hold Maria's bottom, we'll get a sizeable rise.
In the brief bear corrections of the recent ongoing secular bull, the capitulations were sharp an climactic. In the current much more savage bear, the capitulation is more likely to be stage rather than an occurrence - a process rather than a blip. To formulate a possible working hypothesis, let's take a closer look at how Maria's bottom may look: (very schematic)
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July Fall New Year
Since only bears are likely to owe significant taxes, one might think that tax loss selling would be anemic this fall. But fund portfolio rebalancing, insecure bulls (Here we go again!), and greedy bears are likely to combine to produce the customary "fall weakness" in the market. Any rally from that weakness will likely be muted by the approaching Persian Gulf War II - remember you schedule desert wars in the winter (but you don't want to spoil the holidays). A resounding victory over the Bad Boy of Bagdad would give the market a euphoric lift and (what a surprise) enhances Bush's chances in '04.
In the real world, it's unlikely that the two cheeks of Maria's bottom will be as symmetrical as portrayed above. Also, the slope of the line connecting the three lows and the ultimate rise will depend strongly on the economy's continued recovery. However, just this past weekend, our treasury secretary assured us that the economy will continue to grow at 3.5% this year, and will be better come next year. So there's nothing to worry about.
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lurqer |
