Closer to bear market - closer to the next rally


Since our commentary of last week, US and world stocks markets slid another 5% on average, taking most to within a percent or two of the official definition of a bear market (a decline of 20% from the previous peak.)  Indeed, France (CAC), Japan (Nikkei), Hong Kong (Hang Seng) and India (Bombay) are already there.

As of close of trading in Europe on Monday (US trading closed in honor of Martin Luther King Day), the S&P 500 and NASDAQ futures indicated that US markets would open another 4-4.5% lower, which would put the US markets in bear territory as well. 

Rational analysis of the situation has gone completely by the wayside; investors are blindly selling without regard to valuations.  Last week saw horrific earnings reports out of Citigroup and Merrill Lynch, but also terrific reports out of Intel and IBM.  No matter - all stocks were marked down.

As we wrote in our last commentary, "We're gritting our teeth, not selling stocks and looking to deploy cash at the first opportunity."  According to several models that we follow, stocks are at the cheapest levels in the last 12 years, possibly the last 18 years.