2008-03-17

A "Bear Market" will be announced within days

What was the result of Helicopter Ben's interest rate cut and the demise of Bear Stearns? Well, he announced it on a Sunday, so no results from the market yet.

Here in the Asia-Pacific, however, the reaction was overwhelmingly negative. The Australian Sharemarket (ASX 200) dropped by 2.3%, which was pretty good compared to the 4.01% drop in Hong Kong and the 3.71% drop in Japan.

All this means, of course, that the chances of a drop in the sharemarket on Wall Street are quite high. And if the shares fall far enough, a "bear market" may be declared - maybe not on Monday but probably some day this week.

A "bear market" is when a sharemarket index has dropped by 20% from its previous high. My preferred index is the Wilshire 5000, which peaked last year at 15,806.69. It closed last Friday at 12,992.93. In order for a bear market to be declared in the Wilshire 5000, the index has to drop below 12,645.35. In order for that to happen in the next few days of trading, Friday's close has to decline by a mere 2.68%. Considering the falls today in Tokyo and Hong Kong, such a one day decline is very possible - if not before the end of the week.

The Wilshire, of course, pretty much follows the Dow Jones Industrial Average and the S&P 500 in terms of peaks and troughs. Bear markets will be declared there as well.

Yes, that's a prediction.

1 comment:

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