Date: March 25, 2020

Not “THE” Bottom – 2008 Not a Good Guide

Well Tuesday was fun! At least for the bulls. Monday pretty much bottomed on schedule and we saw unprecedented and massive buying off the lows. It was really across the board with some eye popping numbers, like 93% of the shares traded went into stocks going up on the day. They were more than 2500 net issues trading higher than lower which is more than 10:1.

In a vacuum some people would say that these are new bull market initiating numbers, or a thrust. However, given the depth and acceleration of the decline, right now, this is best viewed as a very strong countertrend rally in a short-term bear market. As I mentioned on Sunday when I talked about the tiniest of green shoots, I want to continue to see volatility decline and the flight to quality in treasury bonds end. The number of stock making new lows is down to a manageable number, for now, and that’s also good.

At the lows on Monday, I looked for things that did not make new lows and bucked the trend. Semis, long my favorite group, have been outperforming for several days. Likewise, software, internet, communication services. discretionary, homebuilders, materials and biotech. That’s a healthy number of groups that resisted that final wave of selling.

Let me close with this. All those people invoking 2008 as the model of how stocks are going to bottom will likely be wrong. The bear market began in 2007 and ended in 2009. It was 18 MONTHS long. This decline is 5 weeks so far. Stocks saw their internal or momentum low in October 2008, followed by a revisit in November 2008 and final bottom in March 2009 as you can see below.

I offer that while the bottoming process has already begun as I wrote about on Sunday night, it is going to take some time and more violent swings while the foundation gets repaired. I don’t believe it is going to last 5 months. I also do not believe the low from Monday is “THE” bottom. It should be “A” bottom.

A better model for the stock to bottom can be found from the 1987 crash as well as 1998 and 2011. I will pick up on that tomorrow.

Be well and STAY SAFE!


Paul Schatz, President, Heritage Capital