Are Stocks Near Bear Market? Some Pros See Danger Signs

While the stock market bear may not have made his way quite to Wall Street yet, he's at least in the neighborhood.

CNBC.com

The major averages have eclipsed the correction level—or a 10 percent drop from their most recent highs—and now investors are wondering whether a full-blown bear market, or 20 percent drop, is somewhere on the horizon.

Market dynamics suggest that the bear is close at hand. Aggressive late-day selling that has punctuated wild market swings since the April 23 highs is one of the hallmarks of a bear market.

"We fear that we are in the infancy of this bear market, as much as it pains us to say that, so henceforth watch how the market trades," Dennis Gartman, hedge fund manager and author of the daily Gartman Letter, advised clients Tuesday. Watch "it open firmer, trade a bit better, slow down its strength, begin to wane and then close hard upon or toward the day's lows late in the sessions. When the pattern changes, we'll change."

Jeff Cox
Senior Writer
CNBC.com

Gartman is not alone in his observations.

Market pros are noting the erratic behavior and bracing for more damage after the market's historic 81 percent rally from its March 2009 lows and its 14 percent fall since the most recent high.

"It does look like we're slipping into bear territory again. There's a lot of fear in the market now," says Emily Sanders, CEO of Sanders Financial Management in Atlanta.

The change is noteworthy, even if investors aren't nearly as panicked as they were before the S&P hit its intraday low of 666 on March 6, 2009.

"Back in spring there was an uncommon lack of fear, which was disturbing in itself," Sanders says. "The pendulum is just swinging at this point. There's an overreaction to a lot of the little things, but when those little things are taken together it does create one big panorama of global uncertainty."

To be sure, bearish sentiment is far from unanimous.

Goldman Sachs strategist Abby Joseph Cohen told CNBC on Monday that the US market looks strong and likely has priced in all the contagion from the events that have plagued the market.

Other analysts believe that even if the market does come back to bear status, investors can capitalize by finding bargains, perhaps in technology and elsewhere as valuations come down.

Any number of factors have converged to influence the downturn: The European debt crisis, persistently high unemployment and intensified financial regulations are but three.

Those fears have manifested themselves in a flight from not only US stocks but also those around the world, with Chinese markets dropping 23 percent and Spain equities off 27 percent. The dollar has strengthened, gold has hit new record highs and the 10-year Treasury yield has fallen beneath even the most extreme projections, to below 3.20 percent.

An overreaction to relatively benign problems?

Perhaps, but investors still remember the ride down from the October 2007 highs and remain skittish at any signs of trouble.