Gann Global Financial

Looking at the stock market is more academic than practical for us. What I mean by that is that we are on the sidelines in the stock market having recommended that all subscribers get out of investment positions. The sell signal occurred back in September of last year before the whole financial crisis and everything came unglued.

Bear Market Rally or Bull Market Beginnings?

* Please comment on the video at the bottom of the page *

Our projection for the most recent decline into the March 6th low was one in which we expected that there was going to be greater follow through to the downside than what we experienced.

It was actually abbreviated in terms of overall decline, and this rally has been more significant than we anticipated, if indeed it was a bear market rally. Our work is showing that is probably a 65% probability that this March 6th low is a final bear market low.

In other words, we appear to have started a bull market in stocks. This would be the first leg up in a bull market and our rule in terms of what we do in the markets, market forecasting methods is, it’s much more difficult to call a final low in a market than it is to call a corrective low after the final low is in place.

In other words, the first rally off the March 6th low is going to culminate in the top of the first leg up in an overall bull market, wherever that may be, and then you are going to experience a secondary correction; a correction in an overall bull market, and that is the lowest risk point at which to enter long positions once you have confirmation that the market trend has changed.We’re looking for additional confirmation on that.

Trading the Long Side of the Stock Market?

Our research shows there is a 65% probability right now that we have a final low in place, however, that doesn’t mean that we’re going to be doing anything on the long side of the market.

It has advanced 29% in about one month and six days. That’s incredible. As far as first legs up in terms of velocity of advance, this percentage advance in such a short period of time is one of the greatest legs up in history. This move in the stock market continues to line up with the most volatile, greatest percentage moves since 1886.

These are extreme overbought conditions in the stock market, regardless whether this is a first leg up in a bull market, or a bear market rally. Either way you cut it we have an extremely overbought situation and when we are looking to be a buyer we want to buy on a weakness and corrections.

When we’re looking to get short we do look to short on strength, but since we only have a 35% probability that this is a bear market we don’t want to go counter to the trend.

I’m not saying that we can’t do something on the short side but I don’t anticipate it at this point in time given the information that we have right now.

In looking at the S&P 500, I did want to reiterate something. This rally that we’ve experienced off the March 6th low  (I show the cash chart in the video), has been 30% in one month and seven days into the recent high at 864.31.

Needless to say, that’s about a 330% annualized rate if the market was then going to continue to move up at that kind of velocity. I say that just so you’ll understand how overbought this market is.

In the video I show a table containing all of the bear market percentage rallies during The Great Depression. The greatest percentage advance during the bear market during The Great Depression was the November 1931 advance, and we very nearly met that comparable objective.

It was a 31% advance in 1931 and we hit 30%. On that basis you could say, “Well, why can’t this be a bear market rally like the November 1931 bear market rally?”

Based on this, obviously we have not exceeded it so it could be, but based upon the formation at the lows, the fact that we have retraced so significantly at a more demonstrable way than any bear market rally during The Great Depression, we retraced this decline from January 6th to March 6th, tells us that the geometry of this market has divorced itself from The Great Depression precedents.

There is other evidence as well, particularly looking at overall commodity prices, that it’s very likely that the probabilities are increasing each passing day that the stock market will be confirming a final bear market low.

If that’s the case then we would be looking at the possibility of re-entering investment positions on a correction in a projected overall bull market.

If that correction occurs from recent highs, it’s possible that we could correct. Let’s just say down to the 750 level, something on that order.

It would have to be at least a one-month correction before we could re-enter a long term investment position as investors. We recommended, at approximately the 1250 level, exiting all investment positions in the stock market.

That was an all-out sell signal. We told subscribers, “Get out. This market is in all kinds of trouble.” Now we are looking at the other side of the mountain and the possibility that we could, over the course of time, give a major buy signal in the stock market to subscribers to our market forecasting services.

In light of the implications of the US economy, hopefully the storm, this tsunami, has passed as far as the crisis is concerned, but volatility is going to continue and we’re going to have a lot more to say on this.

I’m pretty excited, needless to say, about the prospect of having sold the S&P 500 at 1250, and be able to buy it at 40% discount, possibly down at the 750 level if that plays out. We’ll have a lot more to say on that.