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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Baldur Fjvlnisson who wrote (20475)	6/28/2002 9:44:24 AM
From: Baldur Fjvlnisson	Respond to of 74559

Bear claws its way into history book Second-longest since '49: Signs of a bottom as stocks rally in sharp reversal Ian Karleff National Post Friday, June 28, 2002 nationalpost.com{81BED51A-9227-4C27-8F69-1EFC080B3F44} Stock markets staged another see-saw rally yesterday, but the recent lows make the current bear market the second-longest since 1949, and the second-deepest since the mid-1970's, as the bubble deflates by as much as it was hyped. Although the consensus says stocks are deeply undervalued, some market watchers say fear still has the potential to drive us deeper than greed sent us soaring. The Standard & Poor's 500 index has dropped 35% in 27 months and hovers just above its Sept. 21 low, while the largest 100 stocks listed on Nasdaq have shed about 78%. Investors must harken back to the bear market of 1973 to 1974 to see a sharper drop of 48.2%, while the bear market between May, 1946, and June, 1949, boasts a longer duration at 36 months. "That's a really big drop ... but market history is littered with going to extremes in either direction," said Kent Engelke, strategist at Anderson & Strudwick Inc., noting that the sharpest drop for any index was the Dow Jones falling 90% during 1929 to 1932. This past week has seen wild market fluctuations of 250-plus points for the Dow Jones industrial average on any one day, as investors take profits on every rally, and race back into gold and precious metals stocks at the first whiff of trouble. But capitulation appears to be mounting, with volumes on the New York Stock Exchange approaching the two billion mark in each of the past two trading sessions. The Dow closed up 149.81 points yesterday, after first falling 85 points, while the TSX composite closed up 52.83 points after a 17-point fall in the morning. Mr. Engelke has been a staunch bear for the past three years, but is turning slightly optimistic as of late because "the bad news is so widely disseminated. "The greatest fear in the market is the Nasdaq itself swings to the opposite extreme that it was on the upside," Mr. Engelke said. "You had extreme over-valuation at 5100 and if it goes to 750 you have extreme undervaluation." He points to an historically high "popular participation" rate in stocks, which rose to a record peak of 60% in March, 2000, when markets were at record highs, up from 25% in the 1973-74 bear market, and 10% in 1929, as reason for the swings. "We had a huge influx of people that shouldn't have been there. Fear is more powerful than greed ... if people really get spooked, that 750 level could be tested." Michael Manford of Canaccord Capital Corp., dubs the current market doldrums, and the excessive heights we saw in March, 2000, as "symmetric irrationality." "We are about as undervalued today as we were overvalued in the first quarter of 2000. Certainly, this is one of the longer ones [bear markets] around and one of the more frustrating ones. It marks one of the biggest disconnects between the fundamentals and the level of market since 1960," he said. Why is the current bear dragging on so long? Robert Spector at Merrill Lynch said this bear market has exceeded the usual one-year timeframe, and 20% to 25% slide, because a huge bubble needed bursting, and "time is as important as magnitude" for a healing of the badly bruised sentiment. "You need a whole new set of investors, and a whole new catalyst ... so you have to capture people's imagination," as was the case with the personal computer in the early 1980s and the Internet and Pentium computers in the mid-1990s, added Mr. Spector.