Thursday, October 9, 2008

What the Hell, Let's Put on the Rally Hats, And: Happy Anniversary Mr. Market!

UPDATE: We stopped out at down 3% (270 Dow points)
Original post:
DJIA 9131.41 -126.69, coming off the second bottom of the day.
I'm not sure if we're looking for 200 or 2000 DJIA points yet. I'll be back with more.
In the meantime, Alphatrends has a great chart of the '29-'32 bear showing six rallies of ~20-50%.
(click to enlarge, it's worth it)

Historical perspective of bear market rallies.

HT: Financial Armageddon

Just remember a few things:
1) Nobody knows anything. The current environment is unique. You must be alert.
2) Moves can be fast and short, fast and drawn out, slow and...You get the picture. From our Sept. 29, post "Get Ready For a Relief Rally. And: How Bad Can it Get":
...A sixty percent retracement of today's (and tomorrow's?) decline is well within the bounds of possibility (I won't go all Fibonacci on you). Then lower....(the whole thing is worth a read, if I do say so myself)
From our Sept. 30, post "If You Can't be Lucky, Be Right. And: Climateer's Quote of the Day":
...60% of 777.68 is 466.62 points. We closed up 485.21, an overshoot of 18 points. I'll lay it all off to luck. Here's our "Quote of the Day":...
A one day rally!
3) We are in a bear market. My target has been a 40% drop in the DJIA from its 14,164 closing high, one year ago today, Happy Anniversary Baby. That is a minimum for the (3rd) stage following the relief rally, it is highly susceptible to changes. Remember this from "Get Ready...":

...A 40% decline from 14,164 puts us at 8498. Here's the cartoon referenced above, posted Sept. 5:

...So we can look for a bounce but think of these names as a trade; bear markets can suck you in. When I first came to the market, one of the older traders told me he was saved in the '73-'74 bear by a cartoon:
(click to enlarge)

That's Alfred Frueh's January 16, 1932 New Yorker classic, "Just around the Corner", commenting on President Hoover's statement that "Prosperity is just around the corner".