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Strategies & Market Trends : Value of Perfect Information
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From: Q811/22/2008 3:24:53 PM
1 Recommendation   of 262
 
More on stock market bottoms. This is an older article that came out when the Dow closed at 8379

But when a definite bottom, or textbook capitulation, will occur is a question. Some analysts who use historical chart patterns and trend lines to determine market direction say prices could go lower. Here are key levels they say could serve as a floor:

•The lows from the last bear. The Dow bottomed in the tech-stock-led crash in October 2002 at 7286 and came close in March 2003 at 7524 — or roughly a 10% to 13% drop from Friday's close of 8379. "It's not inconceivable that we go back and test the lows we saw in 2002 and 2003," says Todd Salamone, analyst at Schaeffer's Investment Research. At those levels, true panic is apt to occur and force all the weak players out of the market.

•The 10-year trend line dating back to 1998. The "big line in the sand," says BigTrends.com chief analyst Price Headley, is a Dow range of 7400-7500 that was first tested in September 1998 near the bottom of the plunge caused by the blowup of hedge fund Long Term Capital Management. This level also held up in the 2000-02 bear.

•The monthly trend line going back to the 1930s. Stocks have given back more than 85% of their bull market gains, above the average give-back of 62%. In the five times that's happened, stocks gave back 110% of their gains, which equates to the 700 level on the S&P 500, or an additional drop of 20%, S&P strategist Sam Stovall says. And 700 would bring stocks back to the monthly trend line dating back to the 1932 low.
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