By Kate Gibson
With few technical or fundamental road signs left, two equity
strategists have devised a top 10 list for investors searching for
signs of a bottom -- not to be confused with a bear-market
rally.
At turns both serious and tongue-in-cheek, BNY ConvergEx Group
analysts Nicholas Colas and Oren Klachkin offer the following as
their top 10 signs of a market bottom:
A significant (more than 10%) one- or two-day drop in the
market. The current orderly decline, while severe, is largely
running in line with the deteriorating U.S. economy, said Colas and
Klachkin. Therefore, an even sharper drop would position stocks as
cheap, relative to fundamentals -- "perhaps even cheap enough to
make a bottom," the analysts said.
Timothy Geithner is replaced with Paul Volcker. Fairly or not,
the market does not have a lot of confidence in Treasury Secretary
Geithner, while former Federal Reserve Chairman Volcker's "proven
abilities in a crisis could play better with investors," the
analysts said. Volcker currently heads the Economic Recovery
Advisory Board under President Barack Obama.
The 100th day of a bankruptcy by General Motors Corp. The first
few weeks of a Chapter 11 filing by the automobile maker would
likely be chaotic, given the industry's linkage with so many parts
of the economy. "After the initial problems, though, the market may
have finally discounted the structural challenges of the U.S.
economy," said Colas and Klachkin.
Gold at $2,000 an ounce. "Gold is the ultimate capital-markets
panic play. A quick double in the metal would be a strong
contrarian indicator that it was time to buy stocks," the analysts
said. "I'm not sure I want to live in a world where gold is $2,000
an ounce. It would mean something is tremendously wrong. From an
equity standpoint, the best thing you can say about gold right now
is that it hasn't broken out to record highs even in the face of
uncertainty," Colas said in an interview with MarketWatch. Read
Metals Stocks.
The Dow Jones Industrial Average changes more than two names at
the same time, and/or adds names to increase the overall number of
stocks in the index. "There are some 'zombie stocks' in the index ,
to borrow a popular phrase. The Dow is price-weighted, so
small-priced stocks are almost irrelevant to the performance of the
index. By the time the senior editors of Dow Jones recognize they
need to change some names in the index, it may be time to
[reconsider] the market as a whole."
New York Stock Exchange daily volume drops to 1 billion shares
for 30 sessions in a row. "Sometimes you just need everyone to give
up to make a bottom," the analysts reasoned.
One million jobs lost in a month. Such a bad number could
indicate a bottom, given the lagging nature of the employment
count.
The market starts to rally on bad news. "In prior cycles, bad
news turned into good market performance when it showed that [the]
Fed had the economic reason to cut interest rates. In this market,
the Fed is out of bullets, so bad news is bad. When the market can
rally on bad news, it is a great sign that valuations finally
reflect the current environment," the analysts said.
Stock market favorites see 15% to 20% declines. When standout
companies -- such as Wal-Mart Stores Inc. and McDonald's Corp. --
"get clobbered" you'll know a bottom is near, they said.
CNBC goes off the air. "The entire financial community has a
love/hate relationship with the box in the corner of every trading
room that is permanently turned to the network. The only certain
bottom would be when so few people care that the network has to
close." Read Jon Friedman's commentary on Jon Stewart's CNBC
skewering.
On Monday, Geithner remained Treasury secretary, GM was still a
going concern, and CNBC remained on the air. Stocks finished
solidly lower after meandering between gains and losses, with
energy stocks leading the gains and telecommunication services
pacing the declines.
"People continue to be in panic-driven liquidation mode. These
markets haven't been so oversold since tomorrow," said Art Hogan,
chief market strategist at Jefferies & Co.
The Dow industrials fell 79.89 points, or 1.2%, to 6,547.05. The
S&P 500 , dropped 6.85 points, or 1%, to 676.53, and the Nasdaq
Composite (RIXF) declined 25.21 points, or 2%, to 1,268.64, its
lowest close since October 2002.