Front page story in today’s WSJ:
In many ways, this is what a classic bear market looks like: After a
long period of exuberance, a downturn hits one part of the economy —
in this case, the housing market and mortgage-backed securities.
Eventually, that leads to broader losses, even for strong companies,
and markets begin a prolonged grind downward. . .
The current market looks a lot like the beginning of
past bear markets, such as the ones that began in 2000 and in the 1970s
and 1987, said Paul Desmond, president of market-research firm Lowry’s
Reports in North Palm Beach, Fla. First, the most troubled stocks
decline — home builders and financial stocks in the current case —
and then others gradually get hit, including small stocks, retailers,
technology stocks, and foreign stocks. Finally even stocks of strong
companies are affected.
What happens, Mr. Desmond says, is that trading volume
and price movement get heavier and heavier for stocks that are
declining, and lighter and lighter on the buying side, as more
investors look for a way out. When the selling reaches a climax, the
bear market is nearing an end, but Mr. Desmond says he doesn’t see any
sign of a climax yet.
"We feel we have been in a bear market since July.
Everything that we have seen since then has just been a progression,
almost like a disease that you are monitoring and the disease is
spreading," he says. "We are still a long way from a major bottom."
He is watching for a sign of panic selling, but says
it hasn’t gotten to that point yet. "Everything we are seeing looks
like a typical bear market," he says."
Our interview with Paul Desmond a few years ago on the subject of Market Tops was quite instructive. Note that Paul has been appropriately Bullish the entire run up, and only became cautious last summer.
Q&A: Paul Desmond of Lowry’s Reports http://bigpicture.typepad.com/comments/2006/02/qa_paul_desmond.html
Part II — Q&A: Paul Desmond of Lowry’s Reports http://bigpicture.typepad.com/comments/2006/02/part_ii_qa_paul.html
Stocks Show Classic Bear Signals, And This Time, Impact Is Global
E.S. BROWNING and JOANNA SLATER
WSJ, January 23, 2008