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Monday, October 13, 2008


a very sick market

of course you'll be hearing this elsewhere, but as we closed i went to the dow daily data since 1915 to find comparables for today's monster rally. there are few.

one day in the denouement (precursor to the retests) of the 1987 crash. one day in the denouement (but before the low) of the 1929 crash. and several days in 1931, 1932 and 1933.

i further took a look at the greatest two-day rally from low-to-close over that span. today's figure -- 20.76% -- is the third-greatest on record. the two greater closed on october 21, 1987 (25.47%) and october 30, 1929 (21.76%). fourth place is october 31, 1929 (18.45%). three sessions following in 1987, the dow was (-12%) lower; by november 13, 1929, the dow was (-27%) lower.

tied for fifth is october 20, 1937 (16.23%) -- a bear market rally that went just a few percent higher over six further sessions before nosing over into a continuation of the bear that bottomed finally in march 1938. also tied for fifth is september 21, 1932 -- just following the rally off the 1932 bottom, but at the outset of a bear leg that eventually ended on february 27 1933 some (-33%) lower.

among days of this kind there are some starters pistols -- november 14, 1929 and april 19, 1933, for example. but the majority were simply sharp bear market rallies, most of which left little or no upside to capture in the move.

the credit markets were closed today and they really will tell all. if credit thaws dramatically as a result of the words and actions of governments over the weekend, then this could present a good rally opportunity. if not -- or even if credit improves but remains limited as recession deepens -- this may be another example of the sort of bull trap that makes every major bear market incredibly insidious.

but there's little doubting, on the precedents, that this remains -- rally and all -- a very sick market.

UPDATE: rob hanna is looking for a pullback as well on evidence of a 5-day low in total volume. i have to admit that i broke the rule that has served me extremely well since september 28 and bought modest positions in QID at the close of this day.

of note -- the october 31, 1929, rally topped at the current fractal equivalent of s&p 1040 before turning down into november. the s&p this morning (october 14) tagged 1040 before heading lower. coincidence?

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