Bull or Bear?

When looking at the stock market, some individuals consider themselves to be either bullish or bearish about the market. Their perspective rarely changes, as this is their general sentiment. Putting it a different way, some people are optimistic and some are pessimistic. Many, like me, evaluate the current situation and try to determine if the long-term market trend is up, bullish, or down, bearish. Currently, I am bearish! On November 20th of last year, the market hit a bottom, and again on March 9th of this year, it hit a new bottom. From March 10th until the present, the stock market has moved upwards. It is not unusual to see the stock market have a rally within a bear market. The rallies generally last from two to three months. If the current situation is a rally, it will be three months old this Wednesday. We have had periods within bull markets when the rallies have lasted for five months. I don’t believe that will be the case with this rally. Bear markets tend to retrace their steps back to a bottom to test it before a bull market begins. Bull markets are generally found when prices are rising on increasing volume and where the vast majority of stocks are showing new highs in their prices compared to the previous 52 weeks. In addition, the up-volume of stocks is far greater than the down- volume. From March 10th until the early part of April, we saw some of these characteristics in the stock market. Volume had picked up, some stocks were seeing new 52-week highs and the up-volume was stronger than the down-volume. This period ended with a new period in which the market indices were trading within a band showing buying on the down side and selling on the up side (“buy the dips”). Bit by bit, the volume began to decrease. Last Monday, June 1st, General Motors filed for bankruptcy and the stock market made a major move up. While that move was impressive, it was on relatively low volume and seemed to be more of a lack of sellers than demand from buyers. This pattern continued last week. From technical analysis, what seems to be happening is that the rally is losing steam! If technical analysis is not enough, it is hard from fundamental analysis to figure out how the stock market can move forward with 6.7 million people on regular 26-week continuing unemployment claims, another 2.35 million claiming jobless benefits through an emergency program (up to an additional 33 weeks) for a total of over 9 million people out of work, and this does not count the people who have either given up looking for a job or who have settled on being “underemployed.” The economy is giving up more than 600,000 jobs a week! Will U.S. consumers, who are very important, as they represent over two-thirds of the economy, be able to spend or pay taxes if they are out of work? Business has reacted by retrenching and cutting costs as well as workers. In the fourth quarter of last year, the economy was down 6.3%, and for the first quarter of this year it sank 5.7%. Construction is down, capital spending is down and exports are down. Now the logic is that as bad as things are they are better than “before.” This may be the case, but generally stocks rise when the potential for earning is rising, and I find it hard to figure that in the next six months we are going to see a major turnaround in earnings. I could be wrong about looking at a bear market and thinking that, at best, it will be in mid- to late October before we see the real beginnings of a turnaround, but I don’t think so. Ed