Dow Jones 300+ Point Moves and Bear Markets

Here is a Bespoke Investment Group's article on SA today :

Merrill Lynch's David Rosenberg was on CNBC this morning arguing that yesterday's 300+ point move was simply a bear market rally, and that 300+ point moves usually occur during bear markets. He then went on to say that during the entire bull market from 2002 - 2007, there was not one single 300 point rally.

While 300 point rallies usually occur during bear markets, Rosenberg left out that they also have occurred at the start of major rallies. In fact, the Dow rallied 13.1% and 12.5% following the first two ever 300+ point moves in the Dow at the 1998 lows. They also occurred multiple times at both the July '02 and October '02 lows. In fact, Rosenberg's argument that there were no 300+ point rallies during the last bull market was simply incorrect. The Dow actually had two 300+ point days on 10/11/02 and 10/15/02 both of which came during the first week of the bull market.

Overall, the average return in the three months following all 300+ point moves has been -0.18%, with positive returns 48% of the time. Not exactly bullish, but not a mandate for more declines either. Instead of arguing that 300+ point moves only come during bear markets, it should have been that they usually come during bear markets, but they can also come right at the turning point from a bear to a new bull.

click to enlarge

The article above has been responsed by Barry Ritholtz from The Big Picture as presented below:

Wow, lots of interesting responses from yesterday's 300 Point Dow Gains? During Bear Markets ONLY. I appreciate those of you who actually do a little research, and sent in some form of analysis.

Of course, as many of you pointed out, a percentage measure would be much more credible than mere numbers. I thought Rosenberg was having a little fun with it. I suspect he was pushing back against the "300 point rally? Its a bull market!" meme circulating via the usual cheerleaders. Note that he has 10-15,000 retail brokers, and when that line circulates on Bubble TV, he likely gets a lot of internal email on it.

Let's consider Bespoke's Analysis on the subject: They note that average returns three months after all 300+ point moves has been 0.06%, with positive returns 50% of the time.


Buying the 1997 and 1998 300+ days made you money (if you held on long enough). But as my marked up version of their chart (below) shows, every subsequent 300+ day led to an eventual lower low.
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DOW JONES 300+ POINT MOVES AND BEAR MARKETS



chart via Bespoke Investment Group

I sent the following questions to the Bespoke boys:


• What percentage of 300 point days had lower prices occur there after?
• What was the 300 point day to trough average percentage loss?
• How many days afterwards did the trough/low occur on average?

We'll post their answers here later . . .

Related Posts :

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

The Agriculture's Bear Market

Bear markets are commonly defined as a slump of 20 percent or more. Although the Analysts are still bullish on the Agriculture, but the sector is very cautious. There are many reasons why I remain to warn about the Agriculture Bubble Burst; you can still read the reasons at my prior posts - the links in the related posts section.

As shown by The PowerShares DB Agriculture Fund(DBA) Chart below, the sector has been corrected by about 20% from its peak since late June 2008. It means the agriculture stocks are entering into the bear market territory for the sector.

However, currently oversold condition is only a temporary beside a major downward trend of the sector or even it might be the bottom.

I'm not saying the Agriculture is not good for investment. For the short run, the Agriculture sector just needs to be corrected as consequence of bubble that has been due to speculative trading and overblowing up the stock ratings. But in the long run, the Agriculture promises safest and high return on investment. The standpoint is it depends on how you choose your investment strategy.

Here is a list of prices correction of the Fertilizer stocks since its peak on June 2008 until yesterday:

1. Potash Corp.(POT) has downed about 25%
2. Mosaic Co. (MOS) has downed about 30%
3. Monsanto Co. (MON) has downed about 24%
4. Agrium Inc. (AGU) has downed about 25%
5. Bunge Inc. (BG) has downed about 26%
6. CF Industries Holdings Inc. (CF) has downed about 18%

I only list the fertilizer stocks above because the others such as corn producers have slumped before them.





Related Posts :

1. Profit Falls 61% at Archer Daniels Midland(ADM) Signs Agriculture Jitters
2. Forget Oil, the New Bubble Burst is Agriculture
3. Dennis Gartman Predicts Corn Ethanol Producers Bankruptcy
4. Agrium(AGU) is Temporary Oversold
5. More Bearish Alert on Bunge(BG)
6. Bunge (BG)’s Negative Cash Flow and Credit Delinquencies
7. World Food Shortage and the Ethanol Bubble

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.