Saturday, February 28, 2009

Three Main US Canaries Are All On The Bottom of the Bird Cage

Its now official, the S&P 500, DJIA and DJTA Indexes have all broken below their November 21, 2008 lows. A clear Dow Theory confirmation of a continued US Bear Market, at least for awhile longer. The Nasdaq has yet to do so but I consider it a secondary index.

The Canadian TSX Composite Index is teetering on the edge of doing the same thing. On February 24th it went below its November low during mid-day trading. So there is little hope that Canada will avoid more downside as well.

We should expect the bear market to retrace something more than the ~50 percent loss to date. This bear market is now officially the second largest market loss since 1929-1932 (-89%).


Adam said...

Just curious, as you clearly have your head in this stuff much more than I, What are your metrics for stating in the largest market loss since 29-32 (-89%)

What percent are we at now based on those metrics whereby -89% is derived?

Maybe I am out to lunch on this?

Adam said...

*stating we are in*

Canadian Money said...


The -50 % is calculated from the peak levels at the start of the bear market. For example, the TSX Composite Index was at 15,155 in June 2008 and is now near 7,600.

(15,155-7,600)/15,155 = 0.50
50 percent lower.

If you check a mutual fund such as a dividend fund, it may be somewhat less of a loss due to dividend income within the fund. Or, if you check an individual stock, it may be more or less than a 50 % loss at this time.

The -50 % level is an historic statistical event relative to the famous 1929 crash. Other bear markets such as 1974, 1987 and 2000 never went as low as -50 %

chrispycrunch said...

I get asked many times 'what is the bottom'. I use charting but it is foolish to try to call a bottom when the banking system is currently still seized. A remarkable buying opportunity may await, but this is on condition that the bank un-seizes!

Anonymous said...

Interesting post CM. I certainly can't argue with that we are most likely headed lower. I do believe however that action rather than talk can move the market in a big way. The problem now I see is people are tired of talk of a bad bank, elimination of mark to market, return of the uptick - none of which have materialized. Real action to begin to have a market for these toxic assets would in my opinion go a long way in curing the market.

That said, I do agree with your overall concept that people need to live much more within their means. I remember a time when cars were not financed, you paid cash. I remember a time when you put down 20% for a home minimum. I remember a time when you paid cash for everything day to day.

Now though we have hit another extreme where people putting 20% down are being refused a home loan, people who have never had a late payment are having their credit lines cut, so that needs to come back in balance.