Morning Comment from Firm

For the last few weeks we have been talking about the critical S&P 500 support levels and how they are the dividing line between a rally and another waterfall like decline. Well here we are just two days and a very modest bounce removed from a retest of that support and we have already given back 90% of that two day bounce. This is not encouraging given that this feeble bounce came after a 15 % market thrashing over 9 days ! That said we continue to suggest investors watch the support levels on the S&P 500 near 740 as a break below that support would open up a torrent of new selling and maybe a final capitulation.

Anecdotal sentiment the last two days was off the charts bullish as everyone was calling a bottom. One thing we have learned over time and we have repeated this mantra over and over again, bear markets end when even after along-decline investors stop trying to call the low (typically out of frustration of being wrong over and over). For instance on the way down in 2001 and 2002 the bottom was probably called 50 times. However when we hit the actual lows people were super bearish. On the flip side bull cycles end when investors stop calling for the "TOP" and everyone is bullish. Jog your memory a bit and remember the 2000 top. The consensus then after a run from NASDAQ 1000 to NASDAQ 5000 was not that we were at a top but rather we were in a "NEW ERA" and that stocks and the economy would grow forever ! We say this to reinforce the point we need people screaming in the streets to be at a new low and it appears there is more disbelief than fear at the moment.

We expect there is one more shoe to drop in the finance arena. This could create the violation of the support and lead to another hard sell-off and then ultimately the low everyone will then not be calling for !!




posted by Peter Greene