Bear in Retreat

It appears that we hit a deep pocket of panic. The current incumbent in the White House has proven himself a master at creating them. Even now as he tries to calm the markets with his bailout pronouncements, stock experience severe bouts of vertigo and go into free-fall. The individual retirement investor has all but abandoned his dream of an early retirement in the lap of luxury.

With this backdrop the markets promptly reversed and raised ahead. Just today alone, the Dow was up 4.7%, NASDAQ up 3.4%, S&P500 up 4.8% and the resource laden TSX up a whopping 7.2%. At this hour Asian markets are rallying strongly. It seems the credit crunch is a thing of the past.

But all too often the bear returns when people believe him gone. He waits just long enough for the greedy to re-enter the market. He then grabs them and mauls them badly. Technical analysts are working feverishly to divine the future direction of the markets. Are the chart patterns they see just a manifestation of randomness? Conclusive proof of the patterns' predictive properties does not exist. Pure faith will have to fill the void.

Sometimes the market does not turn back to re-test or break previous lows. It happened two decades ago. After the October 19, 1987 crash the market never broke below crash lows. The real economy was unaffected by the crash. Fundamental analysts exercise their craft, trying to determine whether equities are undervalued. They will enter the market based on the belief that they have found value. Will the strength of their conviction leave them, if the market breaks down to new lows?