Market Decline: Shake Down or Shake Out?

Posted by: Tara Kalwarski on August 18, 2009

Yesterday’s market rout begs a number of questions, according to Richard Ross, Head of Global Technical Strategy for Auerbach Grayson, a NY-based brokerage firm:

Is the sudden global decline a Shake Out or Shake Down?

Has the world really changed overnight or had it never really changed that much back in March?

Was the 50% run in the S&P 500 just a “Bear Market Rally” or the beginning of the next great “Bull Market” advance?

The data, he says, seems to suggest both Shake Out AND Shake Down.

Here’s a look at how stocks in the Standard & Poor’s 500-stock index performed yesterday, as well how much they’ve gained since hitting 52-week lows:

Download file

Ross says that his analysis suggests that we’re experiencing a “healthy Shake Out within the context of an ongoing Bullish Advance, rather than a Shake Down at the end of a Bear Market Rally.”

What do you think?

Reader Comments

itsme

August 18, 2009 5:43 PM

I really do not think so.
SP500 P/E ratio is really "ridiculously" overrated.
I expect a serious pullback (maybe beyond the march 666 lows) before we can even think of any sort of recovery.
It's easy to prop up the markets with taxpayer money. But sooner or later the real deal presents itself in its true face without makeup.
Housing has not bottomed, unempoloyment is rising (fewer people are even looking for a job....they gave up).
I'm expecting bad news from China. Once they realize that the U.S. cannot buy any of the products they've been manufacturing like crazy over the past months......oh well....to you the comment!

Cheerz

Itsme

Edwin

August 18, 2009 6:21 PM

Totally agree with Itsme.

So much touble still ahead. Just to name one; commercial real estate. And banks making money again? Yeah right. They just do not have to mention the real value of their assets anymore. They can say what ever they want they are worth. So even book a profit by upgrading their assest again.

And this is just one, there are many, many more examples.

donny walberg

August 19, 2009 2:36 PM

It's a shake out first then a shake down. Commercial real estate is moving down. Rail shipments are down 20% in North America. Factories are shutting down and pink slipping everyone. Earnings will be down for most companies in the next 1-2 years. You can't have higher stock values for any sustained period of time without earnings growth. This is the sharpest rally since 1930 and that was a Bear Market rally. And that was in a deflationary period also. Deflation= Less Jobs, Less Money, Lower Prices for assets. Helicoptor Ben is trying to stop it but it just won't work. Didn't work for Japan.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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