An Even More Volatile Decade Ahead?

Peter Brimelow MarketWatch January 25, 2010

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Peter Brimelow

Jan. 25, 2010, 12:48 a.m. EST · Recommend (2) · Post:

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Crash of 2008 winner: Bear market is back

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A bailout for Bernanke

By Peter Brimelow, MarketWatch

NEW YORK (MarketWatch) -- Last week's stock slaughter has the bears bunching balefully.

Richard Russell summarizes the situation in his Dow Theory Letters:

"Does not look good. But you don't have to take my word for it, look at the daily chart...The Dow has been down four out of the last five sessions and is now trading well below its 50-day moving average...Note the increase in volume on today's negative action, another 'Distribution day.'"

Russell went on:

"I've done my best to warn subscribers of 'the coming weakness.' True, I had to use instinct and my 'market sense' to do it, but the picture is becoming progressively more ugly. By my early computation, down volume today was an ugly 92% of up + down volume... it tells us that this market has the potential to panic on the downside."

But, Russell cautioned, with characteristic cunning:

"Remember, after a 90% down-day, it is normal to see a 4 to 7 'dead cat bounce' on the upside. It's like a man who's shot getting up for a few seconds in shock -- just before he falls down again."

Dennis Slothower of Stealth Stocks Daily, an extreme (and conspiracy-conscious) skeptic about the post-March 2009 bull market, wrote:

"You could feel it coming ... like a freight train ... sellers jumped in with both feet trying to salvage gains before it all comes apart at the seams. There was fear in the markets today and panic selling was the order of the day. The S&P 500 has fallen more in this consecutive 3-day sell-off than any other consecutive selling spree since this bear market sucker rally began in March of 2009.

"Fear has jumped to unbelievable levels in just three days of selling.

"While I could mention recent housing data and rising unemployment claims as excuses for this selling, it wouldn't be an honest analysis. This market has been technically set up for a sell-off for a very long time. Like we have been warning, when too much bullish sentiment steps to the same side of the river, the big boys open the reservoir flood gates and drown everyone in its path.

"Those who have been riding the gentle pull backs along this rally are probably still holding their positions as we end this week, hoping that their rubber raft will once again keep them afloat until a beach shows up somewhere or the tide changes. It may not happen ... they may float out to sea...

"If you are not in 100% cash, consider getting to that point quickly, especially on any bounce we might see next week."

Wild? But let the record show: Slothower evaded the Crash of 2008 and has a strong record over the longer term. ( See Dec. 4, 2008 column.) Over the last three years, he is up a significant 2.86% annualized by Hulbert Financial Digest count, versus negative 5.25% annualized for the dividend-reinvested Wilshire 5000 Total Stock Market Index.

And then there's this fascinating forecast from Charles Allmon, octogenarian editor of Growth Stock Outlook. ( See Sept. 17, 2009 column.)

Allmon has long been a brutal bear, tempered by his extraordinary stock picking. But in his most recent letter, he wrote:

"My guess? 2010-2020 may prove to be even more volatile than its predecessor decade...Bottom line? We might see the Dow visit the 3,000-4,500 range, and 21,000, all in one decade."

Hmm. I presume Allmon means the Dow will visit 3,000-4,500 first. Don't you think?

I don't see anything in Allmon's career methodology (micro fundamentalist, number-crunching earning, assets, leverage) to explain his macro market-timing intuition.

But (OK, I've been around a long time!) I'm eerily reminded of long-forgotten Edson Gould, equally venerable editor of Findings and Forecasts, the great perma-bear of the 1970s, who stunned everyone by predicting out of the blue that the Dow could reach the stratosphere -- "3,000, 4,000, or 5,000" -- in the 1980s.

The dead cat bounce is the 4-7 (days?) that are up? I thought the past 9 months was the dead cat bounce. I'm wishing we would've had the 2-3 years of a Depression when this crisis hit. We'd be looking at Dow 21,000 and seeing Dow 3000 in the rear view mirror right now. I can see Dow 3000 when the back breaking debt monster implodes. But I'm wondering how Allmon sees Dow 21,000. I'm..."

- F-T-Analysis | 12:55 a.m. Today12:55 a.m. Jan. 25, 2010

Ben Bernanke's future as the leader of the Federal Reserve was in doubt late last week, but he's been bailed out by a strange coalition: The White House and the Senate Republican leadership.

9:13 a.m. Today9:13 a.m. Jan. 25, 2010 | Comments: 168

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