CHESSNOID

From October 2007 to July 2008, the market went from a cheerful bull to a gloomy bear. Officially, all 3 indexes are down 20%. According to Bloomberg:

The S&P 500 extended its retreat from an October record to more than the 20 percent threshold that signals the start of a so-called bear market. The Dow has fallen 21 percent from its October all-time high and closed in a bear market on July 2.

The technicals for the 3 indexes are trending downward and I think the fundamentals match that assessment. It would sound easy to say that now probably is not the time to get back into stocks. When will the bottom hit, no one can tell but I think there are signs in Main Street America that is hard to ignore. We are all forced to buy gas if we want to get anywhere which is closer to $5 a gallon where I live at. Housing prices are still falling and those who do want to buy houses or refinance are just not being approved. Now the stock market is retreating into a Bear frenzy and is down 20% across the major indexes. So when you look at your 401K or IRA statements, you get that awful feeling you lost more money, even though they are just paper losses right now. Main street doesn’t need wall street or the feds to tell us that there is no recession, we just look around at the stores closing and company layoffs, and know that is the new reality. If you had extra money now, would it be the best time to put in the stock market since everything seems like a bargain. Possibly for sure. But could waiting a bit longer yield better deals. According to Bloomberg:

The S&P 500 extended its retreat from an October record to more than the 20 percent threshold that signals the start of a so-called bear market. The Dow has fallen 21 percent from its October all-time high and closed in a bear market on July 2.

Bear Markets

The S&P 500 has had eight previous bear markets since 1962, according to data compiled by Birinyi Associates, a stock research firm based in Westport, Connecticut. Stocks have fallen an average of 33 percent over 382 days during those retreats. The S&P 500’s retreat from its peak has lasted 274 calendar days so far. The Dow has had 11 previous bear markets since 1962, averaging a decline of 29 percent over 322 days.

A 46 percent tumble in financial shares and a 27 percent decline by consumer companies dependent on discretionary spending led the S&P 500’s retreat from its Oct. 9 closing record of 1,565.15. MBIA Inc., the bond insurer whose credit rating was reduced five times by Moody’s Investors Service, slid the most since the S&P 500’s all-time high, falling 94 percent. Washington Mutual Inc., the biggest U.S. savings and loan, had the No. 2 retreat, falling 84 percent as declining home prices and rising gas and food prices spurred foreclosures.

If you go with historical averages, then you might be able to guess the best time might be after about 300 days and when the declines reach about 29-33%. We are at about 20% so maybe 10-15% more the bottom line bargains may be there. Of course as all prospectuses indicate, historical data is not a guarantee of future performance. Lol, that seems to be true in everything. I have been out of stocks for a good time now, and I still sit all in cash. I am patiently waiting but want to make sure I don’t miss the next bull run. I just don’t want to get caught in a bear trap which is what all these recent rallies look like to me.

I am still doing good in my simulated stock fund at UpDown.com. I am actually buying reverse ETFs that go up when the market goes down. I am only keeping short positions and try to sell by the end of the day if possible. I missed selling out 2 days ago, and my portfolio got rocked. I should have sold and locked in the gains. Today the market reversed and I made up all those losses and then some, but I know it is best to unload my holdings and lock in the gains. Funny thing is I think if I had just bought and held these holdings from day 1 I would possibly be ahead of the game and my current performance. I know I could do this with my real money, but I don’t know if I can keep my emotions under control if I make the wrong call. For now this simulation account is helping me build more confidence in my ability. If this was my real moneyand not my fairy tale account, I would be extremely happy about my performance.