The Reprieve Rally Continues

2008-10-14 UPDATE: See comments section for article excerpts, links, and comments.

Why do I say continue, because as noted in Friday’s blog, it started from Friday morning’s low. From there to Friday’s high the DJIA rallied 12.9%. It is now up 25.4% from Friday’s low and 11.1% from Friday’s close.

Compare and contrast the front-page of today’s MarketWatch.com (above) and Friday’s (below):

That shift, from extreme negative (AFTER a week of capitulation-type action) to extreme positive is one of the three factors that signal the rally. The other two are the action of the market itself (the record-breaking rally) and the brand new investment theme (“the worst is over”). That theme can evolve and will over a number of weeks, as is typical, although it will likely be interspersed with bouts of doubt and volatility.

That’s all I’ve got time for today.

That’s from the front page of today’s Wall Street Journal website. Big contract to the pic from Friday (below):

That’s from the front page of Friday’s Washington Post website.

I will close with today’s Yahoo Finance summary (90% upside day) and volume leaders (24 of 25 stocks up) and by a show-and-tell update of my long trades from last week (see below).  When looking at the volume bars, remember that today was a government holiday in the USA (Christopher Columbus Day).

First, the Dow Jones Industrial Average ETF (DIA) to put things in context. As noted above, up 25.4% from Friday’s low and 11.1% from the close.

MSFT: Microsoft lead the rally today, outperforming other high-profile tech stocks, such as Google and Apple (both also up big, but not as big). MSFT was up 18.5% on the day.  Used limit order to exit.

OXPS: OptionsExpress rallied, but underperformed. It was up 8.9%.  Used trailing stops to exit.

PM: Philip Morris outperformed. It was up 13.2%.  Used trailing stops to exit.

EEM: The Emerging Markets ETF outperformed. It was up 22.8%.  Used limit order to exit.

Regarding the QQV (NASDAQ QQQQ Volatility Index), it confirmed the reversal I noted on Friday.

Final note, just because we get a reprieve rally doesn’t mean the bear market is over (it also doesn’t mean it’s not over). As shown on the S&P 500 ETF (SPY) chart above, the prior bear market had two rallies that show on a quarterly chart. Circled to the right is the 2007 to ???? bear market, which not yet had a rally that shows up on a quarterly chart.

Cheers!

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22 thoughts on “The Reprieve Rally Continues

  1. Pretty good blog post here:

    WEEKLY TECHNICAL COMMENTARY (Oct 13-17)
    http://weeklyta.blogspot.com/2008/10/weekly-technical-commentary-oct-13-17_13.html

    EXCERPT:

    This wave is formed when retail investors, always the last group to act, have completely washed out. They are desperately trying to recover as many pennies on the dollar as they can. What we saw on Friday were millions upon million of Americans dumping everything they own. They are the weak hands, and this phase shakes them out of the market. After all, the stock market isn’t a winning lotto ticket and investors need to be aware that it’s not a free ride. We now hit capitulation.

    Capitulation is a psychological pattern. There are feelings of hopelessness, despair, depression (and others) will permeate market sentiment. Go talk to an ordinary person with little market knowledge, and I can guarantee you that they’re going to say something like “why would I want to buy stocks, they stink!” Most retail investors who just got crushed will not have the courage to start buying and this will go on for a long time. Think of this as a kid that burned his hand on the stove. He won’t go near that stove for a while.

    At this point, retail investors are shaken out, there’s very little capital in play because more and more investors are ditching the idea of using margin, and most investors have lost real working capital (we lost $2.4 trillion last week alone!). After the decline, there is a lack of money at work in the markets, so it’s only natural to see low volume follow a spike in volume during the climax.

    In the S&P 500 on Friday (chart below), you could see buying volume pick up and spike at the end of the day and this volume activity confirmed the price action (rally) that started in the afternoon. This extreme change in sentiment told me that something major will occur. When was the last time you had a 1,000 point range in a single day (on the Dow)? The markets were moving, and the price-volume relationship confirmed it.

  2. The trailing stop orders I entered yesterday hit (yesterday). They were tight and did their job. See original Tweets, below:

    “Trailing stops to lock-in gains.”
    04:32 PM October 13, 2008 from twhirl

    “All losses from Wed. and Thr. whipsaw recovered due to MSFT, OXPS, PM, and EEM longs. MSFT outperforming GOOG, AAPL, RIMM, QQQQ, DIA.”
    04:29 PM October 13, 2008 from twhirl

  3. 1) Consumer spending:
    Not that this is a new trend, but the MasterCard data (“largest monthly drop since at least 2003”).

    2) Business spending:
    Earnings season kicked off this week and most/all companies are, as expected, cutting their spending

    1 + 2 = double-barreled recession, which can create a negative feedback loop. Last “recession” was barely a recession and was quickly bailed out by low-interest-rate-and-easy-credit-driven consumer spending and the housing bubble, with it’s “house = ATM” theme. None of that is in store this time. Low interest rates will be like pushing on a string.

    NY Times article:
    “A Complex Engine Seizes Up”
    2008-10-14
    http://www.nytimes.com/2008/10/15/business/15retail.html?ref=technology#

    EXCERPT:

    With consumers increasingly worried about a severe economic recession, Mr. Vicenteno is hardly the only person keeping his wallet shut.

    A growing body of statistical and anecdotal evidence suggests that demand for televisions, computers, cameras and other electronics is falling sharply — portending extra discounts for customers in coming months but a very unhappy holiday season for retailers, electronics makers and component suppliers.

    MasterCard reported last week that spending on consumer electronics and home appliances dropped 13.8 percent in September compared with a year ago. That number is BY FAR THE LARGEST RECORDED since MasterCard began tracking the category in 2003, and twice the largest previous monthly drop in such spending.

    Investor’s Business Daily article:
    “Companies Cut Investment In Tough Times”
    2008-10-14
    http://www.investors.com/editorial/IBDArticles.asp?artsec=16&artnum=1&issue=20081014

    EXCERPT:

    Corporate America is putting the brakes on capital spending.

    If investment screeches to a stop, that could intensify a recession, economists say. That’s because capital spending is a big driver of economic growth.

    Companies have just started to report third-quarter earnings and revise their outlooks amid the worsening credit crisis. Intel (INTC) late Tuesday joined Alcoa, (AA) Corning, (GLW) Micron Technology, (MU) Macy’s (M) and others that have disclosed plans to pare outlays to conserve cash.

  4. Surely defensive things like hospitals and their suppliers won’t be impacted, right? Wrong:

    NY Times article:
    “Disappearing Credit Forces Hospitals to Delay Improvements”
    2008-10-14
    http://www.nytimes.com/2008/10/15/business/15hospital.html?ref=business

    Well what about the rich? The will always be rich, taking fancy vacations, such as ski trips to Montana’s hottest new, exclusive, and expensive resort (Moonlight Basin) awaits them, fully financed and staffed, right? Wrong:

    Bozeman Daily Chronicle articles:
    “Big Sky resorts struggling to pay the bills”
    2008-9-26
    http://www.bozemandailychronicle.com/articles/2008/09/26/news/10moonlight.txt

    Ok, but those Moonlight people aren’t *really* wealthy. What about the super rich? Well that same Bozeman Daily Chronicle article mentions The Yellowstone Club, which is a private ski and golf club (Bill Gates is a member). They club was building the most expensive house in the world there ($155 million – http://www.forbes.com/2007/01/24/one-million-buy-forbeslife-cx_kd_0125onemillionhome.html). Surely those kind of people are not impacted, right? Wrong. That club is having troubles (see that Bozeman Daily Chronicle article).

    What about the Russian oligarchs, they are fine, right? Wrong. Some of them are feeling it too (the over-leveraged ones).

    What’s the point? The deleveraging is ongoing. From consumers to businesses, rich to poor.

    Again, I’m not saying this reprieve rally can’t run on for some time/price, just saying that the nasty part of the recession is yet to come. Of course, the stock market typically bottoms 6-9 months or so before the end of the recession, but we may not be there yet.

  5. Another example of socialism for the rich, directly transferring taxpayer money, through dividends, out of the companies:

    NY Times article:
    “A Winner for Treasury? Time Will Tell”
    http://www.nytimes.com/2008/10/15/business/15assess.html#
    2008-10-14

    EXCERPT:

    “Whereas some European plans barred banks from paying dividends on common stock until the government got its money back and demanded promises that the banks would keep loans flowing to businesses and individuals, Washington allowed the banks that it invests in to continue paying dividends on existing common and preferred shares.”

  6. Long article, focusing on Elliott Wave, something I don’t know much about (yet?). One point that is quite interesting is excerpted below.

    marketoracle.co.uk article:
    “Stocks Bear Market Has NOT Hit Bottom”
    2008-10-14
    http://www.marketoracle.co.uk/Article6786.html

    EXCERPT:

    Indeed, this is NOT just any bear market BUT a SECULAR one closing 25 year of runaway bull based on the illusion that expanding credit would guarantee perpetual growth.

    There is no doubt that the market peaks in 2000 and 2007 did fully coincide with echoing peaks in margin debt.

    The real “purpose” of the current [decline] is to carry [margin debt] BELOW its previous low [of about $120 billion at the end of 2002]. In other words, you should monitor world indexes SIMULTANEOUSLY with margin debt in USA.

    Imagine that some time in future months DJIA [falls] BUT margin debt still hovers around $170 billion. That would [suggest] a further slide with stocks; indeed, world indexes achieving [a new low or retest of he 2008-10-10 morning low] will [most likely not] be enough to claim the end of the bear leg unless margin debt also break below [about $120 billion].

    In other words, it is FAR TOO EARLY to start claiming the end of the current bear leg.

  7. A look at Canadian margin debt:

    theglobeandmail.com article:
    “Canadian investors carrying record margin debt”
    2008-10-14

    Canadian investors were carrying a record $16.3-billion of margin debt when the stock market began to slide this summer.

    As the first evidence of nasty margin calls emerges, it’s likely that individual investors are facing the same pain as high-profile executives.

    Margin calls forced involuntary stock sales in the past week by the CEOs of Calgary-based Connacher Oil and Gas and a major player in U.S. natural gas, Chesapeake Energy. Russian industrialist Oleg Deripaska liquidated his $1.5-billion Magna International stake for the much the same reason: Banks called loans made to buy stocks.

    Unless Tuesday’s rally is a sign of a real turn in the market, numerous individual investors are feeling the same pain.

    Canadian investors shouldered an increasing amount of margin debt through the first seven months of the year, with loans from dealers climbing from $13.4-billion in January to $16.3-billion at the end of July, the most recent date that data is available, according to the Investment Industry Regulatory Organization of Canada.

    A generation of investors conditioned to buy on the dips seems to have been making some of those purchases with borrowed money. The previous highwater mark in margin debt was $15.2-billion, set in November, 2007.

    The S&P/TSE benchmark peaked in June at 15,154, then dropped steadily in recent months to a low of 8,850 last week, a 41 per cent decline.

    To put debt levels in perspective, IIROC data shows margin loans peaked at $11.3-billion at the height of the tech boom, in Novemeber, 2000, a period that produced its own set of horror stories when loans got called.

  8. Great letter published the other on Portfolio.com:

    “Hedge Fund Manager: Goodbye and F—- You”

    From the Scorched Earth Files:

    Andrew Lahde, manager of a small California hedge fund, Lahde Capital, burst into the spotlight last year after his one-year-old fund returned 866 percent betting against the subprime collapse.

    Last month, he did the unthinkable — he shut things down, claiming dealing with his bank counterparties had become too risky. Today, Lahde passed along his “goodbye” letter, a rollicking missive on everything from greed to economic philosophy. Enjoy.

    Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

    Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

    There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

    I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

    So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

    I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

    On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

    Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

    With that I say good-bye and good luck.

    All the best,
    Andrew Lahde

  9. Some assorted excerpts from Bloomberg, Reuters, and others:

    Of course no real fires have been set, but investors have nonetheless been caught up in a conflagration. Sumner Redstone of Viacom and Richard Robinson of Scholastic were both forced to sell huge stakes in their companies in recent days, to meet margin calls from their banks.

    Amid this month’s stock market crash — the Standard & Poor’s 500 Index has dropped 19 percent in October — energy executives such as McClendon and Bruce Smith, the head of San Antonio-based Tesoro Corp., have reported they were forced to sell company shares after getting margin calls from lenders. Howard Lester, CEO of the San Francisco-based home furnishings retailer Williams-Sonoma Inc., disclosed on Oct. 15 that he sold $13 million of company stock to pay down a margin loan.

    Tom Ward, chairman of SandRidge Energy Inc., faced the same type of borrowing squeeze that has wiped out shareholdings of other natural gas executives — until his board of directors stepped in last week to help.

    SandRidge announced Oct. 10 that its board had approved the purchase of Ward’s interest in some of its natural gas wells for $60 million in cash.

    Trusts tied to the chairman and chief executive of Apartment Investment and Management Co (Aimco) AIV.N sold more than one million shares to cover margin calls, according to a recent federal filing.

    From Oct. 13 through Oct. 15, two family trusts in which Terry Considine is the general partner and holds a stake of 0.5 percent, sold 1,249,800 shares to cover margin calls, according to an Oct. 15 filing with the U.S. Securities and Exchange Commission.
    On Oct. 15, he personally sold 33,645 shares, according to the filing. Also, an entity in which he is the sole voting and investment power sold 8,058 shares, according to the filing.

  10. I wonder why we don’t hear more about the popping international housing bubbles and international mortgage mess? Would be interesting to see some sort of comparison article and data tables and graphs over time of the 25 (or whatever) largest economies in the world. Here’s some info on Spain from RGE:

    — Sep 10: José Luis Rodríguez Zapatero, the Spanish prime minister, unveiled a two-pronged plan to support property developers and stem the loss of jobs in the construction industry.

    — August 1: Dresdner (via Bloomberg): Spanish AAA-rated mortgage debt is judged to be the riskiest on the continent. Investors demand as much as 240 basis points more than Euribor, the benchmark for interbank lending in the euro zone, up from 85 basis points at the end of last year–> it costs borrowers an extra 15.5 million euros in annual payments for every billion euros of bonds.

    — August 1 Bloomberg: PIMCO and Pioneer held Spanish RMBS are quickly losing value and underperforming EMU bond indexes–> inflated home values and Spanish version of subprime lending (multiple signatories if one person does not qualify, variable-rate loans to families at the financial limit when interest rates were close to the lowest in a generation) are starting to show.

    — June 27, S&P (via Bloomberg): Homeowners fell into arrears on 3.61 percent of the mortgages included in S&P’s RMBS Delinquency Index in Q1 (up from 2.96 percent in Q4). Delinquencies of 90 days or more, known as “severe,” rose to 1.10 percent from 0.71 percent–> high interest rates and “over indebtedness” are causing Spanish borrowers to fall behind on their payments.

    — cont: Securities sold by Union de Creditos Inmobiliarios, a Madrid-based company controlled by Banco Santander and BNP Paribas, have the highest delinquency rates with 4.6 percent of mortgages backing the bonds in “severe” arrears.

    — cont: Spain’s mortgage delinquency rate is the highest of six European countries that S&P monitors. Portugal is second highest at 3.34 percent, followed by Italy at 2.8 percent, Germany at 2.5 percent, the U.K. at 2.4 percent and Holland at 1.1 percent.

    — FT May 29: Number of house sales completed in March dropped more than 38% year-on-year, to 46,100 units (this compares with an annual decrease of 27 per cent in January and 24.5 per cent in February.)

    — BNP: A sensible base case is that investment in housing drops by at least 20% over the coming years to closer equate housing starts with population growth. A 20% drop in construction activity, if carried over to the labor market, could lead to 500k job losses, which would effectively reduce total employment growth by a factor of four

    — Mortgage lending and house prices in Spain have risen the fastest among Eurozone members despite rising interest rates.

    — Many riskier loans to immigrants with no credit history

  11. Here’s a Newsweek article:
    http://www.newsweek.com/id/164626

    “Hanging By A Finger
    The fallout from China’s housing slump is now spreading fast, to makers of car, steel and more.”

    2008-10-18

    Officially, housing prices in China have barely ticked downward nationwide. Anecdotally, however, prices are plummeting in many cities, and year-on-year sales volumes have fallen as much as 60 percent from their peaks in some markets. The crash—a word that’s gaining currency among analysts who follow China’s real-estate sector—bodes ill for the broader economy at a time when Beijing hopes to ramp up domestic demand. That’s because, much as in America, housing in China sets the tone for the economy. It drives industrial outputs like steel, and largely determines final consumption of appliances, furniture and cars. “Everything moves hand in hand,” says Scott Laprise, an analyst for CLSA based in Shanghai. “First people buy the home, then they fill it, then they get a car for the garage.”

  12. http://mktsentiment.blogspot.com

    Monday, October 27, 2008
    ZUGZWANG- “FORCED MOVE”:
    In chess, the optimal strategy is to put your opponent into a position in which they can only make one move each time, forcing them into checkmate. In today’s markets, the combination of hedge fund and mutual fund redemptions, margin calls, mutual fund tax loss selling, 401k and pension withdrawals and shorting has driven most all the Sentiment Indicators to extremely oversold levels, yet, just as with oscillators, they can stay that way indefinitely.
    One only hopes that with the end of the (ugliest) month, the election relief, year-end seasonality, and the DJIA approaching several multi-year support levels, we have seen a Selling Climax and the entry into a Wyckoff-type Trading Range.
    For those interested in this, there appears to be only a few spaces left for next weekend’s TSAA Annual Seminar on Wyckoff -www.tsaasf.org. -to register.

    Some of these Indicator extremes include the VIX at record highs (actually touching 90), CBOE put/call ratios in the 80s; new highs to new lows at incredible 7 to 1000; Bullish percent at 8, after hitting a recent 2% of stocks on buy signals (probably inverse ETFs). Also at record levels – McClellan figures and Investors Intelligence Bears.
    Also Bullish FOR the market – public vs. Specialist shorting is quite high and Insider Selling is very low.

  13. http://www.clusterstock.com/2008/10/the-capitulation-myth

    The “Capitulation” Myth
    Henry Blodget | Oct 25, 08 6:36 AM

    Are you cleverly waiting for that big moment of “capitulation,” where every other investor on earth except you panics and throws in the towel, allowing you to snap up their assets for peanuts? Yes, you probably are. Because on CNBC for the past month, every other guest has explained that what everyone should wait for is “capitulation.”

    Of course, investors have “capitulated” at least half a dozen times over the past month, and that hasn’t stopped the market from tumbling lower only days later. But fear not: The guests on CNBC will continue to talk about “capitulation” until you’re so bored or poor that you’re no longer listening. (Or until the market rallies a thousand points, at which point they’ll confidently explain that the most recent huge downdraft was the great Capitulation–but didn’t tell you about at the time.)

    As Jason Zweig explains in the WSJ, you would probably be well-advised to stop waiting for capitulation. Sometimes bear markets end that way. But sometimes they don’t. Sometimes they end when no one is trading anymore because no one has any money anymore and no one cares:

    There’s a belief that the market can hit bottom only when vast numbers of investors finally capitulate, throwing in the towel and selling off the last of their stock portfolios. In theory, if you could spot this moment, you could make a killing buying at the bottom.

    There are two problems here. First, capitulation is almost impossible to define. Second, even if you could get a positive ID on capitulation, that might not do you any good. Market lows aren’t necessarily marked by tidal waves of frantic selling; just as frequently, stocks bottom out in a dull and lonely atmosphere as trading dries up and most investors no longer even care. Bear markets often end not in capitulation but stupefaction…

    In truth, bear markets often end not in a crescendo of selling but a cloud of indifference. For example, take Dec. 6, 1974, a day that will long live in market infamy. The Dow closed at 577.60, down 45% from its levels in January 1973. Total trading volume was a tepid 15.5 million shares; a few days earlier, it had totaled only 7.4 million, tying the lowest level in more than three years. Lucien Hooper, one of the nation’s leading security analysts, told The Wall Street Journal that day that the market was “just waiting the bad times out.” Far from throwing in the towel, most investors weren’t even at ringside.

    “The most interesting thing about [the 1974 market bottom] was its dullness,” veteran fund manager Ralph Wanger recalled to me. “It wasn’t a crash, it was a mudslide. You came in, watched the market go down a few points and went home. The next day you went through the same thing all over again.” And then, without a moment’s warning, the bull woke up and took off. By Jan. 6, 1975, the market had shot up 10%, and a year after that the Dow had risen 54% from its 1974 low.

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