Don't Blink

As of yesterday, we are in a bull market! Before you start throwing shoes, plates anything not nailed down, consider the definition of a bull market. A twenty percent rise, preceded by a twenty percent decline is by definition a bull market. All hail the bull. Over the past 408 trading days, this is the first moment when equity markets have risen twenty percent or more. From 10/9/2007 until 11/20/2008 we have been in a bear market. Yes it IS all a bit of bull but an instructive one nonetheless.

Consider what the market is telling us. Some of the relentless downward pressure seems to have abated. Either long term buyers are beginning to emerge or short traders are beginning to cover their positions and beginning to go to neutral if not bullish postures. Do not be certain that we have passed the bottom of this market though.

During the popping of the dot com bubble, there was a thirty percent rally ending a six month bear market on 9/21/2001. Over the next year, that thirty percent rally was followed by another thirty percent loss to a lower low; which was followed by another twenty percent gain, followed by another twenty percent retracement…..followed by yet another twenty-six percent upswing……and another eighteen percent drop. All of this was within the period from 3/3/2002 to 3/9/2003, twelve months of gut wrenching volatility. Each move would have been a full year’s result in a trending market.

But the process of bottoming is not a trending market. Market bottoms do not occur with an all-clear siren wailing. Rather they emerge, after months or even years of testing and retesting. Unfortunately such volatile swings are the domain of nimble traders, not investors. But the time to panic is past and the time to strategize is now. Investors should be returning to long term strategic allocations. Add to equities slowly aware that the end of this terrible market will be a process, not an event.

John Barnyak
President