Thursday, July 13, 2006

Current decline in S&P vs. Sept 2000

I have made no secret of my assessment of the current market conditions and have been mostly looking at oppotunities on the short side. In the worst case, we may be facing a resumption of the secular bear started in 2000. As such, I have been comparing the current decline with the one started in September 2000 despite quite different macro conditions.

Click for a larger version

After observing similar initial stages of these two declines I made a rather pompous attemp to predict the market movement for the rest of the initial down leg. Alas, history does not repeat itself, at least not exactly. The decline was aborted by temporary injection of liquidity by the BoJ as well as some hinting that the ZIRP might be maintained for sometime. However, the market has a will of its own: it seems all the billions have only managed to shift everything by 3 days. In the current decline, the bottom of the 1st leg occured on day 25 vs. day 28 in 2000. The most recent leg down started on day 43 vs. day 46 in 2000. It remains to be seen whether the magnitude of the decline will remain subdued compared with year 2000.

Of course, this study is not meant to be a guide to short term trading and greater divergences going forward can be anticipated. However, the similarity in market action continues to bolster the case that the secular bear has resumed its course.

In PMs, I'm still hopeful that the June 12 low will hold. I mentioned in the latter part of this post that the HUI might find a near term top at 351. After several days of sideways movement the HUI went down with the market today despite gold rising above $660, true to its safe haven status. I'll discuss my outlook here in a coming post.

This is not investment advice, please do your own due dilligence. Good luck and be safe!