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If It Looks Like a Bear, and Moves Like a Bear …

September 24, 2011
If It Looks Like a Bear, and Moves Like a Bear …

AFTER a week in which stocks sank more than 6 percent, the sell-off in equities that began five months ago is coming perilously close to bear market territory.

Whether this correction turns into a full-fledged bear, and whether the conomic slowdown that started the selling in late April is labeled a recession may not matter much in the end.

While it’s true that the Standard & Poor’s 500-stock index isn’t technically in a bear market now — at the end of the week, domestic equities were off 16 percent from their April 29 peak — plenty of other parts of the market have dropped more than 20 percent, the requisite mark of a bear.

Small-company stocks in the Russell 2000 index, for example, fell as much as 25 percent earlier this year. Foreign stocks in the Morgan Stanley Capital International EAFE index lost as much as 26 percent. And the MSCI emerging-markets index was down around 27 percent from this spring.

Four of the 10 sectors that make up the S.& P. 500, meanwhile, have also slipped into a bear market.

As for broad domestic equities, they’ve taken investors on a very rough ride since the financial crisis of 2008 and early 2009. “This is about as severe as it gets without it being called a bear market,” said Sam Stovall, chief investment strategist at S.& P. Equity Research.

In fact, if this slide stops short of the 20 percent mark, it will have been the most severe correction for the S.& P. 500 in recent memory that didn’t morph into an official bear market.

This slide feels so much like a bear because of its speed, some market strategists say. Technically, the correction began on April 29, when the S.& P. peaked at 1,363.61. But the bulk of the 16 percent decline took place in two brief but volatile periods. First, from July 25 to Aug. 8, stocks fell about 16 percent. After rebounding, they sank more than 6 percent last week.


Skating on Thin Ice, Keep Life Preservers Handy

We may be skating on very thin ice here, but the weight of the evidence still supports a weak bull case for the near to intermediate term. So I’m adding buy picks on the chart pick list and adjusting trailing stops to account for the risk.

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These reports are not investment advice. They are for informational purposes, for a broad audience of investment and trading professionals, and other experienced investors and traders. Chart pick performance changes week to week and past performance may not indicate future results, as you know. Trading involves risk, and these reports assume that you understand those risks and manage them according to your tolerance. 

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