Bear Week: Jim Stack


Thursday’s bear is James Stack, editor of InvesTech Market Analyst. He warns that our current bull market is no spring chicken -- and that your best offense is to have a good defense. He correctly anticipated Black Monday in 1987, and warned about the tech bubble in the late 1990's.

James Stack, is also president of Stack Financial Management, and he joins the panel for this conversation. Here are excerpts from what was said.

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What’s gives you anxiety?

“The bull market will celebrate it’s 5th birthday next month,” says Stack. “And it will be the 3rd longest (bull market) in the past 75 years. But bull markets don’t die of old age.... (And) what we’re looking at right now are really several bear market warnings… one of them is in bear market leadership (Stack goes on to explain that he developed an index to measure leadership).

What are some components of that index?

“It’s looking at quantity and quality of stocks hitting new lows,” says Stack. "To have a good healthy bull market you should have a broad number of stocks hitting new highs.. the same is true for a bear market (They should hit new lows)."

But, how do you distinguish between a financial crisis such as the current credit crunch and a bear market?

“That’s kind of a magic formula that I don’t think anyone has the answer to,” says Stack. “Today we have a wild card out there that is unprecedented. That is the unwinding of the housing boom and the big story there… is the build up in (housing) inventory.”

What's the trade?

“I think the best investments right now.. are sectors that are defensive such as energy, healthcare and consumer staples.”

Bear Week: Jim Stack

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Trader disclosure: On Sept. 6, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (JWN); Najarian Owns (CHL), (BJS);Finerman's Firm Owns (WMT); Finerman's Firm Owns S&P 500 Puts; Finerman's Firm Owns Russell 2000 Puts; Finerman's Firm Is Long (MDG) And Is Short (AUY) Against It.

Stack Financial Management Owns (DEO), (KO), (LH)