Wednesday, August 12, 2009

Doug Short and a New Look at the Four Bad Bears

While we are waiting to see what the FOMC has to say, I thought I would use this lull to highlight the work of Doug Short, which can be found at dshort.com.

Yesterday, in The Road to Recovery, Doug looked at the profile of recoveries from four strong bear markets. Given the relative ease with which stocks have recovered from their March lows (see chart below), Doug adopts a skeptical tone (which I share) about the path forward for stocks:

“Our current market is now 47% above the March 9th low. It has significantly outperformed the 1974 and 2002 rebounds over the equivalent period, and it briefly surpassed the 48% rally in the 1929 Dow. Will it continue to show resilience?”

For a related post and graphic that puts the above in a different perspective, readers are encouraged to check out Doug’s The “Real” Mega-Bear Quartet 2000.

[source: dshort.com]

4 comments:

stonebat said...

this spectacular gain since march has been mainly driven by the massive short covering and the inflow of excessive money liquidity into the equity market as the money cant find a good way to invest in the "real" economy activities. today's fomc statement didnt kill the dollar. energy sector is still looking bearish. vix:vxv is looking much better to go up higher. btw it seems theres stronger correlation between vix and the excessive money liquidity invested in equity market...

Eric said...

yeah that statement didn't kill the dollar, but i was knocked out of some good positions on the immediate whipsaw reaction. i am dollar bullish near-term.
i would say that i am very skeptical, but i feel that Bernanke understands history and has learned from it, without being biased by a one size fits all method. bernanke has single-handedly saved the credit card companies. and i think it is his understanding of big warning signs in september that saved us from depression.
maybe it could be the case that the real economy is revived while the market lags. i do see a sustained period of slow growth.
it is interesting that attempts in the depression to balance the budget and ward off inflation ended up hurting the recovery very badly.

Anonymous said...

The bearish head and shoulders pattern that developed between early May and July tenth was negated at the SPX 880 level the week of July 13th-17th since the SPX 500 index increased by over seven percent that week. The SPX 500 resistance levels of 890, 950, 980 and 1000 were also surpassed. The latest SPX 500 resistance levels of 1007-1010 will also be taken out and 1020 is the next level to be surpassed by the SPX 500 index.

The U.S. Treasury increased M2 from about $850 billion in December 2008 to over $1.8 trillion. Money is being pumped into the banking system and liquidity is finding its way into various U.S. stock markets.

Bears will be a near-extinct species when and/or if the U.S. stock markets correct and Dow 10000 is likely to occur by September.

Anonymous said...

To those of you who made wildly bullish predictions here: check how many SPX calls were shorted last week (the week of Aug. 3) before you make such predictions, OK?

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