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2003: The "Great Bear
Market of 2000-200[?]" Continues Printer-friendly version |
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The
Market Outlook for 2003 So where and when will it end? We certainly don't know, but you can bet there will be many more "disasters du jour" unfolding in the coming weeks and months. We even expect that a major U.S. state and eventually the U.S. federal government will be found guilty of accounting fraud and of deceiving us taxpayers. It's just a question of when and how much. If there's one thing all market analysts agree upon, it's that "markets don't move in a straight line " So if markets don't travel in straight lines, just how do they travel? In zigs and zags, or more precisely, in waves. These waves can be quantified and qualified, and used to project the markets' most likely next move. That's where the Elliott Wave Principle comes in. Quite simply, the wave structure down from the 2000 high just doesn't appear to be complete. Further, it appears that another major down leg is underway. Here's our analysis and outlook for the DJIA the next 12-18 months:
The Great Bear held firm control throughout most of 2002. The buy-the-dippers came out in force in October as the talking heads and anal-ysts parading across CNBC resumed chanting their first mantra: "the bottom is in..., the bottom is in...." We think the Great Bear merely paused to loosen his belt a couple of notches and light up a fine cigar. As discussed in these pages many times since the March 2000 bubble peak, countertrend rallies such as we saw in October-November are to be expected and even welcomed. These corrective bounces are needed to relieve the oversold conditions created by the primary down trend, thus clearing the way for the next down leg. Unfortunately (for most market participants as well as for the "greater good"), 2003 has the very real potential to produce "The Big One," that 1929-style grand super cycle crash. Indeed, the one thing still eluding this e Great Bear Market is that elusive historic one-day crash. Stay tuned; the potential for a crash will remain high throughout 2003. We'll try and zero in on it as the waves play out their cards in 2003. As we enter the new year, the markets' greatest fear is that the imminent war in Iraq won't be the quick and dirty cakewalk the politicians are promising. With as much advanced notice as Iraq has received, Saddam Hussein will no doubt have at least a few tricks up his sleeve. There's no point in speculating about exactly what he may have conjured up in his delusional dreams. In the December issue of Money Magazine, Prudent Bear Fund Manager David Tice lays out his case for "Dow 3000." Among Tice's main arguments:
As this report hits the web site, this must-read article isn't yet online, so if you're not a Money magazine subscriber, check your local library. On the valuation side of things, stocks remain widely and wildly overvalued. This despite the dramatic plunge in the markets since the top in early 2000. Mainstream anal-ysts pay most of their attention to the S&P 500, so we'll look at what they're looking at, too. The P/E ratio on the S&P 500 stands at 17 (2003 consensus forecast), 33 (trailing twelve-month GAAP), or 50 (trailing twelve-month "core" earnings). Any way you measure it, stocks are still expensive in terms of earnings valuation. Typically, bear markets beat down stock prices into the 7-10 P/E range before a lasting bottom takes hold. Bianco Research reports that total U.S. market capitalization stand at just about 100% of the U.S. GDP. This is down from 183% in March 2000, but still well above the 1929 peak of 81%.
Sentiment is Still Striking For example, market sentiment remains massively bullish. Investor's Intelligence's latest survey of independent stock market newsletters reveals a 50.4% to 24.2% lead for the bulls. Such excessive bullish sentiment is most often seen near market tops, not bottoms. The bear market will bottom when pessimism peaks. According to this CNN/Money Poll, individual investors are definitely still bullish. If you had $10,000, where would you invest it for 2003?
Mainstream anal-ysts on The Street are also still bullish (after all these years). See "Most Wall Street strategists see good things for the market in 2003." From this CNN story, here are the past and present forecasts for the S&P 500 from some of the biggest names (and biggest paychecks) on The Street.
Joe Battipaglia and his band of Band of Perma-Bulls are also as bullish as ever, They're looking for gains of 8-20% in 2003. Listen to them on CNN. From within the heart of the Great Bear Market of 2000 - 200[?], now is not the time to abandon the mainstay of our approach, contrarianism. So,
What's and Investor to Do? But alas (for the bulls), we think the odds of such a rescue plan are about as great as the Chicago Cubs meeting the Chicago White Sox in next year's World Series. We think the fiscal pressures arising from the war in Iraq will trump the push for the tax cut. (To argue the bull case for a brief moment, we think such concerns are typical of the short-sighted attitudes of most politicians (of both major parties), Clearly, the long-term structural benefits of such a tax cut outweigh any temporary short-term revenue short-falls. The price of gold should continue to benefit from the weak dollar, the increasing crises around the globe, and some very interesting market dynamics. Gold's dramatic rise above $350 last week may be just the first leg higher of a major advance. There is a good deal of credence behind the conspiracy theorists' claim that a massive short squeeze may be underway. J.P. Morgan/Chase, Citibank and a host of other global mega-conglomerates are wound up in a massive gold derivatives gambit. If things get messy, gold could start surging in $5 and $10 increments, rather than $1 or $2. So on the equity side of things, what's an investor to do? First and foremost, nowhere is it written that you must be invested in the equity markets all of the time, or at any time. Three percent in a money market account in 2002 looks pretty good compared to the Nasdaq's 31% drubbing, plus you get to sleep nights. For aggressive investors, the 18 Great Bear Funds we have identified out of an industry of 12,500 funds performed exceedingly well in 2002, as detailed above. They should fare exceedingly well again in 2003. For speculators, any short-term strength in the markets hold potentially excellent entry points to the short side. Also, the extremely high risk and high volatility "junior" gold stocks hold excellent potential to capitalize on another leg up in gold. Invest carefully, at your own risk. Please read the disclaimer. Thanks for visiting www.bearmarketcentral.com and to all we say: "Kung Hei Fat Choy" -- "Wishing You Success and Prosperity" for this Year of the Black Bear. -- Grizzly P.S. Agree? Disagree? Express your opinion in the new Hair of the Bear Forum. © 2003 www.bearmarketcentral.com. All rights reserved. Please read the disclaimer.
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