3rd Inning of Bear Market

I've been hearing people make reference to baseball when measuring the time frame of this bear market. With recent (fragile) stability in the market, majority of the analysts seem to be saying that we are in the 7th,8th inning of this bear market game. So I've decided to do some research and find out whether the starting pitcher has indeed retired himself, replaced by a relief pitcher from the BULLpen.

I referred back to the previous bear market of 2000~2002. In that bear market, the sector with the most problem was technology. That honor goes to the financial sector in this bear market. So I've decided to compare technology sector of '00~'02 with financial sector '07~?. According to my assumptive calculations, it'd appear that we may be 75% complete in terms of price retracement and 50% complete in retracement time. What that means is that from the highs of late last year, the financial sector have dropped in price 3/4 of the way to the bottom. However, the speed of decline will decelerate and it'll take as long as it's taken so far to retrace 75%, to retrace the final 25%. That'd mean that the bottom in financials will be reached around the end of 2008. Now, that doesn't mean that it'll skyrocket from there on. The recovery process prior to regaining upside momentum will also take some time.

After comparing the two most critical sectors for the two bear markets, I, then, compared S&P500 for the two timeframes. It seems as though we are 50% complete in price retracement but only about 33% complete in retracement time. These numbers are significant because the general market will fare worse than the financial sector from here on out. Fundamentally, this logic would prove to be true as the credit problems will turn away from financials (where the Fed is out to exterminate them) and cause problems in other sectors that have not experienced pain yet.

I expect not one but TWO more shoes to drop in the market price. With this in mind, I'd be wary of any rallies and not fall victim to the mass media that may make the market seem safer than it really is. Currently, we are undergoing one of these hard-to-trust rallies. We may be setting up for the next drop, making this summer quite painful for some.

My final analysis: We are currently in the 3rd inning of this bear market. Get used to it and act accordingly.

Rino Choi
Titans of Wall Street
Market Columnist