The obsession with trying to call a bottom is based on a very real historical fact: Slowdowns in the economy -- call them recessions if you want to -- are invariably followed by rallies. Big rallies.
This is the point Ned Davis made in a note to his clients a short while ago. He looked at the last ten "official" recessions going back to 1949. In each case, the bottoms were followed by significant rallies. The S&P was up by a mean of 16 percent three months later, 24 percent six months later, and 32 percent a year later.
So the key game is calling the bottom: how far are we?
The problem, as Davis notes, is that market bottoms have typically occurred at extremes based on volume, volatility and other factors, which do not appear to be present -- yet.
However, if there is not a serious downturn, then the market is simply oversold and the market will recover as it realizes it has averted a serious downturn.
Or it could recover fast -- really fast.
If the Fed makes a dramatic move, or the Federal government creates a stimulus program that the market perceives will keep the economy out of a serious downturn, then we could see a sharp snapback rally that lays the foundation for a steady move upward.
Get the point? There are a lot of variables here. There're plenty of bulls around -- they have been cowed a bit by Citigroup yesterday, which blew apart the idea that financials should be bought now (calling the bottom in financials), but they are not going to go away.
There are tremendous opportunities here -- you just need nerves of steel.
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