February saw the Nasdaq dish out its third-worst monthly performance in history, dropping 22.4 percent. The only two months with bigger losses are the Crash of October ’87, and November 2000.

The Nasdaq has fallen a net 14 percent so far this year, its worst start to a year since 1984. Bloomberg News reports that the Nasdaq’s worst bear was January 1973 to October 1974, when it lost 60% in 630 days. So far in the 2000-2001 Great Bear Market, the Nasdaq has lost 57% in just under a year. A break of 2,050, only 65 points below Friday’s close, will put this Great Bear Market into first (worst) place.

Every rally attempt of late has been met with renewed and intense selling pressure, which is classic bear market action. This is the flip side of what happens in bull markets, when "buy-the-dippers" pounce on any weakness and prices immediately rebound.

As we’ve been discussing in our daily Grizzly’s Daily Growls, we've been expecting a sharp but brief counter-trend rally for the last ten days or so, and it is yet to materialize. A week ago, Richard Arms, inventor of the indispensable TRIN (Arms) index, said "the Nasdaq is the most oversold it has ever been."

So what will it take to spark at least a short-term rally in the markets? Interest rate cuts haven't worked. Deeply oversold technical indicators haven't work. We don't know what will work, but since we're in the heart of a Great Bear Market, any rebound is likely to be sharp but short-lived. 

As the Elliott Wave patterns show, the Nasdaq is nearing completion of its third major leg down of the Great Bear. Wave Five of that decline has more to go, probably to around 1,800, before a multi-week wave 4 rally ensues.

For much more detailed information on Elliott Wave technical analysis, please see Putting Elliott Wave to Work in the Markets.

We continue with our ongoing outlook:
US STOCKS REMAIN ON FULL CRASH ALERT!

It "bears" repeating once again that there is still little if any sign of the panic or blood in the streets that would normally mark at least a short-term bottom. Certainly we have not [yet?] seen a massive capitulation day or an historic crash. 

The latest report from Investors Intelligence shows continued extreme optimism, with 61.2% of advisors calling themselves bullish.

Furthermore, a survey of market analysts by Bloomberg News reveals continued widespread optimism among investment professionals. The analysts on average are forecasting that the DJIA will close the year 2001 at 12,564, a 20 percent gain from Friday’s close. They’re even more bullish on the S&P 500, projecting 1572, a 27% gain on that index. [NOTE: Most analysts aren’t brave enough to make a forecast for the Nasdaq Composite!]

Floyd Norris of the New York Times wins our Excellence in Journalism Award this month for his dissection of the price-to-earnings ratio (P/E) on the Nasdaq. Highlights of article include:

As the red ink flows — in a somewhat hidden manner — the Nasdaq 100 is setting new standards for a price-earnings ratio by a major index. The index is now trading at 811 times the combined earnings of the companies in the index.

The ratio, which had never been above 165 before this year, reflects the fact that many Nasdaq companies are reporting huge losses for 2000, when their financial results are analyzed using generally accepted accounting principles, known as GAAP. That trend has been obscured, however, because many companies adjust the numbers in ways that make profits appear to be rising.

[..] The Nasdaq 100 could find itself with net losses, leaving it with no price-earnings ratio at all. That would be a remarkable situation for an index that includes major companies. The last time the Dow Jones industrial average showed a net annual loss for its companies was in 1933, at the bottom of the Great Depression. The Standard & Spoor’s 500 index has never had a period with net losses for all the companies.

Last Thursday, CNBC ran a half-hour retrospect on the bursting of the Nasdaq bubble. On the broadcast, Jeremy Grantham of Grantham, Mayo, Van Otterloo discussed his firm’s study of all 30 or so historic bubbles in essentially all of recorded history. After the bubble burst, in every case, without exception, the market plunged back to (or below) its long-term trend line. For the Nasdaq, this equates to about another 50 % drop from current levels, or down to about 1,100.

CNBC, where was your coverage of The Bubble last spring, when it popped? BearMarketCentral.com was right there, with our "Pop Goes the Bubble" report on April 3, 2000. 

The Associated Press reported last week that of the twenty most widely held mutual funds (ranked on fund assets), only six are in positive territory over the past 52 weeks. The average 52-week loss for the fourteen losing funds is 21%. So, the odds are high that the average American’s portfolio is down over the past year. We’d like to know how many investors are actually holding a net loss position on their total portfolio.

We believe the U.S. economy has already entered a recession (or early in a, gasp, "the D word"). This is not a typical economic cycle induced recession, caused by inventory build-up, high interest rates, etc. This is a burst-bubble recession, caused by a massive loss in the value of financial assets, notably of course the stock market, and the Nasdaq in particular. The Great Bear consumed an estimated $3 trillion in shareholder value over the past year. 

Evidence that the economy already is in recession continues to mount. In addition to the data cited last month, here's the latest economic news:

• The Conference Board's index of consumer confidence tumbled for the fifth straight month.
    
• Orders for durable goods fell six percent.
    
• New home sales fell eleven percent.
    
• The University of Michigan's consumer confidence index fell in February to 90.6 from 94.7 a month earlier.  
    
• The U.S. savings rate also is in a Great Bear Market. The rate fell to a record low of negative 1.0 percent in January.
    
• The Producer Price Index surged in January to 1.1 percent, the highest rate in 11 years.

We continue to keep an eye on Japan, as the Nikkei 225 continues to plunge. The index fell every day last week and on Friday it broke to a new 16 year low at 12,265.

So who cares about Japan anyway, aside from the Japanese? You should. We’re not the first to note that Nasdaq mania has many parallels to the Japanese bubble that was punctured eleven years ago with the Nikkei 225 at 40,000.

In a story glossed over by most of the media in the U.S., Standard & Poor’s, cut its rating on Japanese government debt for first time in 26 years. Read the full story at link to:
http://markets.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT320C4OJJC&live

After eleven years of "pushing on a string" with interest rate cuts, the latest of which came last week and brought a key rate down to 0.15 percent, the Nikkei 225 stands today down some 70 percent from its bubble peak.

In a recent Barron’s interview, Yale professor Robert Shiller, said he saw a similar fate in store for the U.S.:

"Stock prices clearly have a long way to go on the downside. … At a minimum, I think that we will face a decade or two of desultory price action in the stock market...such as the Nikkei has suffered since its collapse... That's what happened after past U.S. stock-market bubbles burst in 1901, 1929, and 1966. Twenty years of grind and substandard returns."