Another Bull Trap Snaps Shut

Over the last couple of days a rally of about 100 points occurred on the SP500 US stock index. This little rally naturally had people wondering if this was going to be a large rally or perhaps the end of the bear market. The rationale being...if the market is down 50 percent surely it can't go much lower. I'm sure that there people thinking/hoping the same thing when the 1929 stock market decline was at a 50 percent loss point. It eventually went to -89 %.

This morning that little 2 day bull trap closed and the SP500 made a new low.

It is also worth noting that another example of a bull trap closing occurred today on the Canadian side of the boarder. Canadian National Railways Company (CNR on TSX exchange) has finished a sideways move that began back on November 21. At that time the low was $38.9. The price has dropped to $38.5 so far today.

These "technical events" are measurable scientific evidence that the bear market is alive and well and that the best bet these days is for lower lows.

These breakouts to new lows do not tell us where and when the bear bottom will occur but they do warn us that the bottom will occur somewhere in the future at some lower level.

CNR Canadian National Railway Stock...lower lows expected Feb. 11, 2009

I believe that earlier I mentioned that the US DJTA Index, the Transports, had already broken below its November low. This lead me to look on the Canadian side of the border to see if there was a Canadian Stock that one might expect to see doing the same thing.

Sure enough, CNR was following the same playbook. CNR had a nice 14 year bull market, running up from about $5 to a high near $60. The trend has now changed from an upward bull market trend to a downward bear market trend. A simple 4 year trend is shown. This action by CNR is totally consistent with everything else going on these days.

So far the bear trend for CNR has retraced about 35 percent of the bull. Don't be surprised to see it hit ~$26 or lower before this bear market is over. The P/E = 11, still too high for the bottom of a severe bear market.