Money manager and advisor Jim Stack, who accurately sidestepped the bear market over the past year, is now turning more optimistic. Here's the latest from his InvesTech Market Analyst.
"As a bear market unfolds, investor emotions travel down a slippery slope of anxiety, fear and panic. And it is just this kind of emotional upheaval that creates some of the extremes that we are seeing now.
"Media headlines containing the word 'depression' and images like this are appearing more this year than in any year since the 1930s.
"Stock market volatility, as measured by the number of 1% daily closing moves in the S&P 500] Index, is near a record high. The percentage of stocks on the NYSE hitting new 12-month lows is higher than any previous record level during the past 50 years.
"Yet, bear markets bottoms occur right in the midst of fear and panic – at the point of maximum gloom. And for consumers, it's hard to get much gloomier: In addition, more bear markets have ended in October than in any other month.
"On Wall Street, fear and market volatility go hand in hand. However, this is not necessarily bad news. Day to day volatility in the S&P 500 is currently at its second highest level in 70 years – exceeded only by the bear market bottom in 2002.
"Of particular interest is the fact that all past 'peak' levels have occurred during years in which important market bottoms have appeared.
"Downside leadership is also hitting new extremes as this bear has tightened its grip. On October 10, a record 88% of stocks on the NYSE hit new 12-month lows – 14 percentage points greater than the previous record set on May 29, 1962. Once again, this is not necessarily bad news!
"We've identified the days whe more than 50% of the NYSE stock shave fallen to new 12-month lows and we've tracked the percentage gain annd/or loss in the S&P 500 that followed. Not one instance saw the market lower 3 months and 6 months later.
"While there isn't much precedent -- only 4 periods before this have seen such extremes since 1962 -- this still offers hope that there is light at the end of the tunnel.
"Meanwhile our technical 'pressure factor' indentifies overbought or oversold extremes in the market, which typically occur at points of maximum optimism or pessimism. Historically, oversold levels such as this usually precede some type of market bottom.
"This indicator has proven to be reliable even for short-term bottoms during prolong bear markets like 2000-02. On Ocotboer 22, the Pressure Factor hit its fifth most oversold level in the past 40 years.
"Such prior extremes occurred in October 1987, March 2003, and February 2007. Following each of these oversold readings the market moved jpward average a 13% gain after 3 months and 17% after 6 months.
"The odds are high we are either near (or past) a market bottom... but only time will tell how important this bottom will be."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
Before the Bell: Futures Higher on Greece Rescue Hopes
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
