Was March 9th the Bottom?

The market has opened lower this morning on news that the White House has rejected the turnaround plans submitted by GM and Chrysler. This is a big mess and it creates a lot of uncertainty. There’s no way the White House can stop the car companies from making big vehicles since that’s where the profits are.

A subscriber to Emerging Growth recently asked if the March 9 low was the bottom. Here’s my answer:

Do the market’s lows on March 9 mark the bottom?

The reality is that the S&P 500 and other major indices continue to bounce along the bottom on a valuation basis–a common event in any bear market.

Back in July 2002, the S&P dropped nearly 20% in just 13 trading days (from about 990 to less than 800). After that shock, the volatility ramped up and we saw a series of bear market rallies and retests that spanned more than seven months–the first major retest coming in October, about three months later, that broke through the July low. There was a big rally after, followed by another retest ending the bear market in mid-March 2003.

The downward spiral of the market started last fall with the Lehman Brothers bankruptcy and ended with the S&P bottoming out at about 750. We then saw a holiday rally that really raised spirits on Wall Street. But after the new year, the sell-off began anew to leave us at the March lows that left the S&P under 700.

While the media is quick to point out the declines, they are awfully slow to admit this is simply the way Wall Street fights through a bear market. The declines are frustrating, to be sure. But these retests are hardly an indication the market is doomed to unyielding declines.

I can’t say for sure that there won’t be another retest and I’d be suspicious of anyone who claims they can. But as the market stabilizes and we see this rally take shape, we’re going to see some explosive gains in our Buy List stocks. And rest assured that given the fundamental strength of our stocks, we’re well-positioned to maintain those gains even in the face of another retest.”

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