Charts Reinforce Latest Downtrend  

TECHNICAL VIEW.  Charts Say Down, Again!  Yesterday, the Dow Transports, S&P 400 Midcap & S&P 600 Smallcap joined the bear market party, err, pardon my loose use of the word party.  Whatever, first it was the Dow Industrials closing below their June 11^th lows last Wednesday.  Then the S&P 500 closed below its June 11^th low last Friday.  Then this Monday, the Nasdaq Composite closed below its previous June 11^th low.  And yesterday, capitulation.  The Dow Transports, S&P Midcap and S&P Smallcap all closed below their June 11^th lows.  Thus what we now have in place is a series of lower highs & lower lows since the two-month bounce from the lows of mid-March to the highs of mid-May ended.

Bulls, that includes most all professionals with only one job to do, invest in the stock market through good times and bad, a.k.a relative return investors, still disagree.  In fact one such bullish guest on CNBC yesterday, resurrected the argument that “a bottom is a process not a one day event.”  This is the argument that the Trillion Dollar Man, Bob Doll of BlackRock, Inc., the influential institutional money manager, proffered after the Fed backstopped the whole financial system at the bottom in March.  She, yesterday’s CNBC guest, when asked why she thinks the stock market has bottomed, pulled out Mr. Doll’s mantra, that a bottom is an event not an event.  And added that’s the way the stock market bottomed in 2002, 2003, three bottoms in relatively the same price range over nine months.  Guess that strategy works for money managers with seemingly unlimited funds, they just keep buying, scaling in near what they figure is good value and a bottom.  But other times that doesn’t work if the stock market confounds and breaks decisively below what the pros think, and have focused in on as a long term solid bottom.  Then the relative return investors fall back on, “Hey, we’re all going down together.”  So no one looks particularly bad.  That’s what happened in the subprime mortgage, securitization implosion last year, they all went down together.

Schwartz View:  Anyhow, the Dow Industrials is the first important index to come close to it’s mid-March, first leg down, bear market lows.  After losing a modest 35 points or -0.3% yesterday it starts off today at Dow 11,807.43 only 67.20 points or +0.57% above its March 10^th closing low of 11,740.20.  As I’ve written for some time now, I expect a rocky summer ahead.  We could retest successfully here and if so, get stuck in an extended trading range.  But I’d venture more likely we slowly, just like we’ve been doing since mid-May work our way lower and lower.  First, one key index breaking below its previous bear market lows set in March.  Then a bounce.  Then another key index breaking lower.  And so on and so on.  Just what’s happened over the last two weeks in breaking this latest declines lows.  That’s the way economically-spawned bear markets operate.  Sorry Mr. Market, I know you just want this decline over right away, hey, we all do, but that’s just not how recession-stylized bear markets unfold.  Economic trends take lots of time to work their ways through the marketplace and stock markets are mirrors of this, only operating in advance with their discounting feature.  So it still looks like a rough and rocky summer ahead, a good time to take a close-to-home vacation (with minimal driving).