Issue 15 • March 11, 2009 Is This Rally Sustainable?
Of course, we can’t know for sure without the benefit of hindsight. But this market is certainly one of extremes ... extreme credit stress ... extreme volatility ... and extreme loss of wealth (in an extremely short time span). Perhaps now is the time for a bear market rally from an extremely oversold stock market. The sharp decline in the Dow Jones Industrial Average of nearly 26% since the start of 2009 (through Monday’s close) marks the absolute WORST start of any year since 1900.1
There have been 19 other years when the Dow was down 5% or more at roughly this point year to date. Unfortunately, the market tended to go even lower over the remainder of the year in all but four of those 19 years.2 In several cases, however, stocks at least clawed back some lost ground to end the year above their early lows, if not with outright gains. This means there is some hope for a rally from here. As it turns out, the most outstanding reversal-of-fortune also occurred during the worst period for stock market investors. In 1933, the Dow was down -12.3% early on, before turning around for a stunning +66.7% full-year gain. That was the most extreme bear-market rally in history.3
Taken as a contrary indicator, this could be positive for the market’s near-term rally prospects. That’s because, if most retail investors have already thrown in the towel, perhaps there are no sellers left to push the market lower. In next week’s Weiss Advice, we’ll take a closer look at how the current bear market stacks up in a historical context, and we’ll revisit the concept of a long-term “secular” bear market. Stay tuned. In the meantime, if you’re an active investor, it’s important to stay nimble in today’s volatile market climate. A flexible approach that includes BOTH long- and short-investment holdings may be your “best bet” until we see fewer extremes in financial market stress and volatility. Good investing,
P.S. To find out more about the flexible investment strategies we offer at Weiss Capital Management, including specialty strategies that can go BOTH long AND short, sign up NOW for a no-obligation portfolio evaluation.* 1 Bespoke Investment Group: “2009: By Far The Worst Start To A Year Since 1900,” 03/03/09; Bloomberg data, 3/10/09 *You must be a U.S. citizen or legal resident to qualify for a complimentary portfolio review. Disclaimers: 1. Weiss Advice is a publication of Weiss Capital Management, an SEC Registered Investment Adviser. Weiss Research is a separate, but affiliated publishing company. Both entities are owned by Weiss Group, LLC. 2. "Weiss Advice" is published for general information and educational purposes only and should not be construed as a specific recommendation to buy or sell any security. Specific recommendations can only be given to advisory clients of Weiss Capital Management, with the benefit of knowing their financial condition and suitability. View Weiss Capital Management's Privacy Policy. To make sure you don't miss our urgent updates, add Weiss Advice to your address book. Just follow these simple steps. |
Until yesterday’s powerful rally, Wall Street was on track for the worst start to the year, by far, since 1900! Was yesterday’s rebound the start of a longer and stronger counter-trend rally ... or just another one-day-wonder? 
Bespoke Investment Group recently published research on its Web site showing years when the market started with a losing streak of 5% or more over a similar time frame as so far this year(see graph above). 
Bespoke also points out another extreme reading at present: sentiment among individual investors has never before been so bearish (see graph). According to data from the American Association of Individual Investors, the public is extremely negative on stocks right now.
