Was July 15th THE Low?

09/04/2008 12:00 am EST

Focus: MARKETS

Dan Sullivan

Editor, The Chartist

Dan Sullivan, editor of The Chartist, says we saw more new lows in mid-July than on any day in the last 20 years.

As we have stated on many occasions, it is important to not get too pessimistic when the economic and political news looks the worst, because bear markets eventually end in this kind of negative environment and a new secular bull market will emerge.

July 15th marked the last interday low on all of the key market indices. Since the October 11, 2007 peak of 1576.09 on the Standard & Poor's 500, we have had four lower lows, with the July 15th low of 1200.44 a decline from peak to valley of 23.83%.

The recent drop from the May 19th intermediate top to the July 15th bottom only consumed 39 trading days and clipped 240 points from the S&P 500, or 16.65%. On July 15th, the number of new lows on the NYSE was 1304, which is the largest number of single-day new lows in at least the past 20 years.

On August 31, 1998, there were 1,183 new lows, triggered by the failure of Long Term Capital Management (LCTM) and accentuated by the Russian financial. The S&P bottomed on August 31, [and] 27 market days later it made a second bottom on October 8, 1998. The S&P 500 then tacked on 59% to the March 24, 2000 top.

[This year's] panic low of July 15th is primarily attributed to the popping of the "housing bubble," which became evident last July 2007. The first selloff occurred on August 16, 2007, with 1116 new lows recorded.

January 22, 2008 saw another set of new lows at 1114, as the credit bubble (housing bubble) had worsened. Then on the March 16th weekend, with the imminent bankruptcy of Bear Stearns, a deal was worked out for JP Morgan to take over Bear Stearns. March 17th saw 759 new lows, as the key indices also reached lows for the current bear cycle.

The "wild card" all during the crisis was the relentless rise in energy, which contributed mightily to the persistent rise of inflation. The current oil peak was coincident with the July 15th low, and many attributed the recent rally off the panic low to the quick drop in oil.

The $64 question is: "Was July 15th the low for this bear market?" The answer will undoubtedly become evident in the coming days as the market action should tell the story. A successful test of the July 15th low should reveal the next market move. A failure to hold the 1200 area in the S&P 500 would not be a positive for the market.

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