Friday, January 18, 2008

Walks like a duck, talks like a duck..

Pretty obvious, really. The question is, does it get worse, stabilize, or gradually recover? A week or so ago I thought to myself as I listened to interviews on CNBC and Bloomberg that, boy, most of these people sound pretty cavalier. Now the mood has changed. I just heard Bob Pisani say on CNBC that the Street wants to see more fear, which is to say it will probably get worse. That sounds right.

MarketWatch: A long-time bull throws in the towel.

Stock market bulls lost an important ally on Wednesday: Dan Sullivan is now convinced that we are in a major bear market.

Sullivan is editor of two newsletters, The Chartist and The Chartist Mutual Fund Letter. Sullivan has been publishing the first of these since the late 1960s, nearly 40 years ago. Very few others have been continuously editing an advisory newsletter for any where close to that long a period.

Sullivan, therefore, has seen lots of different kinds of market environments, which is why we should place more than the usual weight on what his intuition tells him. And right now, as he said in an interview Thursday afternoon, his "gut feeling" is that we're in a bear market that we will need to let "run its course."


Sullivan mentioned two major factors. The first is technical: In recent days, all of the major market averages convincingly broke below their August lows.
The second is the breakdown of the industry groups that were previously leading the market. Sullivan believes that each bull market is dominated by groups with exceptional relative strength, and that the bull market's end is often signaled when those groups lose that strength. As recently as early January, Sullivan had argued that these market leaders were still bucking the downdraft. He says that they are doing so no longer.

As a result, Sullivan has liquidated his two model stock portfolios and gone completely to cash. The last time he was in an all-cash position was in early April 2003, nearly five years ago.