Looks like David Schwartz and his indicator also suggest that we have already seen the bottom of the bear market of 2000-2001 or are currently close to it...the following makes interesting reading...
Riz
Source FT weekend MONEY p3.
David Schwartz has obviously not changed his mind and is continuing to defy the market doom and gloom merchants article follows.
Time to prepare for the upturn
Analysis of previous cycles suggest that the worst may soon be over
History suggests we are near the bottom of a bear market. Spotting the precise point when a bear market ends is quite easy after a reasonable passage of time. There is nothing like a long-term graph featuring a sharp drop followed by a step rally to peg a key reversal point.
But spotting such a point is difficult in real time when prices rocket up or down from day to day and fresh economic or political news changes emotions in a flash.
Fortunately, there is an interesting statistical link that has done a fine job of spotting the lowest points in UK bear markets for many decades. This link is not a precise market timing tool, but often flashes its buy signal near the start of a new bull run Given widespread conerns about currnt stock market conditions, the message being providd by this historical tool is relevant.
History teaches that, in the 20th century, the bottom of a UK bear market was typically associated with two events.
The current price of a broad index had to decline enough to drive it below its one year average. A drop of this magnitude is more challenging than one might guess at first blush. The FTSE 100 did not drop below its one year average until mid 2000, many months after our most recent bear market began.
Once the one year trend line was breached, a bull market signal flashed when a rally closed the gap between the current price and it's one year average. The bear market of 1998 serves as a useful example. By the end of September in that year, the FTSE 100 had fallen to 8% below its one year average. But the October rally closed that gap to minus 1%, signalling that a new bull run was under way.
History teaches that this indicator needs to be monitored just once at the end of each month. Some sophisticated investors will sniff at the thought that simple schoolboy calculations, mindlessly applied every four weeks with no consideration to current economic conditions, could spot the bottoms of bear markets. But the facts speak for themselves.
There have been 17 occasions sine the second world war when UK investors suffered a sharp downturn. A rally eventually narrowed the gap between the current price and the one year average. History shows that a new bull market began within a few months of that "gap closure" in 16 of those 17 occasions.
Remember that gap closures are not precise market timing signals. They typically flash within a few months, not a few days, of the actual markt bottom. Judgement is still required to pick the lowest point.
The strengths and weaknesses of gap analysis have been obvious in the past few months. Rcall that the FTSE 100 fell to the 5300 area in late March and was in the midst of a solid rally when the signal flashed at the end of April. Shares returned to the 5300 area in late July. Even so, if history is any guide, we have already seen the bottom of the bear market of 2000-2001 or are currently close to it.
David Schwartz is a market historian. For additional stock market trends, see
www.schwartztrends.com
