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To: ms.smartest.person who wrote (733)	11/13/2001 7:16:51 PM
From: ms.smartest.person	Read Replies (1) \| Respond to of 5140

Briefing/Stock Brief:Is the Bear Market Over? 09-Nov-01 13:02 ET [BRIEFING.COM - Robert Walberg] Back on September 28th, Briefing.com issued a report in which we noted that due to the length and severity of the current bear market (at that point it was the third longest and fourth deepest since 1929), traders should expect a solid rebound in the near future. Since that date, the DJIA, S&P 500 and Nasdaq indices are up by a 10.4%, 9.8% and 25.1%, respectively. Now the scope and speed of the recovery rally has investors asking whether the nasty bear market is finally over. In an attempt to answer that question we will look at a number of factors, beginning with a couple of charts. Based on the following charts for the S&P 500 and the Nasdaq Composite, we see that while the rebound has been a welcomed change, it has yet to carry far enough to alter the prevailing downtrends. <http://www.briefing.com/graphics/stkbrief/20011108spx.gif> <http://www.briefing.com/graphics/stkbrief/20011108compx.gif> Not surprisingly, the Nasdaq, which has risen the most over the past six weeks, is closer to staging a breakout. However, tech-heavy index needs to make a decisive break of the 1910 area before Briefing.com would consider calling an end to the bear market. We're close, but as you can plainly see from the chart the Nasdaq has been close on a couple occasions in the past only to roll over. To avoid getting caught in another bear trap investors will want to wait for the index to close at least 3% above this ceiling. The picture for the S&P 500 is similar, though the index can run a little further before bumping up against key resistance. In fact, about another 7%. Should note, however, that index has routinely fallen a bit shy of the second standard deviation line over the past year. Regardless, it's obvious that the S&P isn't close to breaking out to the upside. So from a pure chart perspective, it's still too early to cheer the passing of the ugliest bear market in recent memory. Now let's look at the basic fundamentals, starting with the underlying economy. As noted on this page last week, the economic backdrop stinks. No other word for it -- at least not for a family-friendly site like ours. You would think that the pace of deceleration over the past month would alarm folks, but it hasn't. Quite the opposite in fact. Despite some of the worst economic data in over two decades, the indices have marched relentlessly higher. Interestingly, one of the reasons behind the market's success has been the lousy data. Data are so bad that investors a) expect more aggressive monetary and fiscal stimulus (the Fed did their part earlier this week) and b) think the worst is over. While we concur with a, we're not buying into b, as the consumer has just recently begun to rein in spending. Real estate market also just beginning to roll over, which could very well exaggerate the negative wealth effect. And returning to a for a minute, the impact of fiscal and monetary stimulus will take time to be felt (though negative real rates do bode well). Just as investors are starting to bet on an economic recovery by mid-next year, they are also placing bets that corporate earnings have bottomed. If not bottomed, then at least the rate of decline will slow considerably. Soft comparisons have a way of doing that, and the comparisons begin to get easier in Q400. Investors are also encouraged by recent anecdotal evidence that conditions - especially in tech - appear to have stabilized. Again, we've seen hopes of an earnings recovery dashed a couple times over the past year, so we don't want to rush to judgment. Nevertheless, Briefing.com contends that the earnings front is one place we can look to for encouragement going forward. Unfortunately, we're not sure that the more hopeful earnings picture will help propel the indices above the aforementioned resistance levels, as the market has already priced in much of the good news. At today's, prices indices are sporting arguably rich multiples based on both trailing 12-mo and expected earnings. As earnings begin to reaccelerate the valuation issue will take a back seat (at least for a while), but as noted above we're not there yet. Earnings aren't projected to turn positive (on a year/year basis) until Q102 at the earliest -- and those assumptions are based on the economy stabilizing not getting worse. Though low rates and lackluster inflation justify higher than normal valuations, current levels suggest limited upside potential and potentially sizable downside risk. On balance, Briefing.com maintains that the bear market may be old and tired but it's not dead. Once the indices take out the major resistance levels depicted in the charts above, and the economic data have stabilized, it will be safe to step back on the long-side. It might be a little late for some, but in light of the earlier false starts, we think that most investors would rather be safe than sorry. Robert Walberg <http://www.briefing.com/images/Briefing/bullet_top3.gif> Back to Top Copyright © 2001 Briefing.com, Inc. All rights reserved.