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Thursday, January 17, 2008

Bear Market in Stocks Turns Vicious



Wall Street extended its 2008 plunge Thursday (1/17), sending the Dow Jones industrials down 306 points and to their lowest level since last March after a regional Federal Reserve report showed a sharp and unexpected decline in manufacturing activity. -- Yahoo Finance

Back on Dec. 24, I commented on some bullish sentiment readings on the stock market, as reported in Barron's Financial Weekly. These had occurred shortly after the Dow Theory major bear market signal given on November 21 (which I discussed on Dec. 4 & 18), when the Industrials closed at a new low. Indeed, a short-lived bounce occurred.

But the current bear market quickly has resumed -- and turned vicious, as bear markets are wont to do--with the Standard & Poor's 500 Index also piercing its August low. In addition, all the averages are now well below their 200-day moving averages.

MrKen is very bearish on the markets himself & will begin trading within the next 10 days. I have been reviewing potential candidates for selling short--the only possible long positions I like are some of the gold & silver mining stocks**...Stocks almost always fall faster than they rise & MrKen is a pessimist at heart, anyway. :>)

Some comments on the dire state of the equity markets follow from Barron's (The Trader, by Kopin Tan 1/14/08)

"...Might Tuesday's (1/8) low--the S & P finished at 1390 that day--form a meaningful shrt-term bottom? The AAII survey showed a flash of panic, with the percentage of bears reaching 59%, the highest reading since 1990. But the VIX forecast as measured by the VIX volatility index had pushed to just 26--well below August's 37. At the International Securities Exchange, investors bought just 0.72 calls for every put--more fearful than the recent average near 1.16, but still more complacent than the 0.51 low registered before August's rebound."

"Andrew Burkly, Brown Brothers Harriman's market strategist, isn't entirely ready to buy this low, partly because the market's long term upward trend may be changing. 'If the market has transitioned to a primary downtrend, oversold signals need to be deeper to be significant,' he notes."

"Burkley says measures like selling intensity, price momentum and investor sentiment are moving toward extremes, but most are still less extreme than levels seen last August. 'A deeper oversold condition is necessary to indicate that the risk/reward balance for equities has turned favorable.'

To view this week's Barron's for free, follow this link:
http://online.barrons.com/this_week

Disclaimer:

All ideas, opinions, and/or forecasts, expressed or implied, are for informational purposes only and should not be construed as a recommendations to invest, trade and/or speculate in the markets. Any investments, trades and/or speculations made in light of the ideas, opinions and/or forecasts expressed or implied herein, are committed at your own risk, financial or otherwise.

MrKen is NOT a registered Investment Advisor & NONE of the above discussion should be taken as investment advice. It is the writer's personal opinion ONLY, except where specific cites from financial publications are given.

MrKen has no market positions at the time of this post.


** Specific ideas will appear soon...

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