By Kate Gibson
With few technical or fundamental road signs left, two equity
strategists have devised a top 10 list for investors searching for
signs of a bottom, not to be confused with a bear-market rally.
Both serious and tongue-in-cheek, BNY ConvergEx Group analysts
Nicholas Colas and Oren Klachkin offer the following as their top
10 signs of a market bottom:
A significant (more than 10%) one-to-two day drop in the market.
The current orderly decline, while severe, is largely running in
line with the deteriorating U.S. economy, said Colas and Klachkin.
Therefore, an even sharper drop would position stocks as cheap,
relative to their fundamentals. "Perhaps even cheap enough to make
a bottom," the analysts said.
Timothy Geithner is replaced with Paul Volcker. Fairly or not,
the market does not have a lot of confidence in Treasury Secretary
Geithner, while former Federal Reserve chairman Volcker's "proven
abilities in a crisis could play better with investors," the
analysts said. Volcker currently heads the Economic Recovery
Advisory Board under President Barack Obama.
The 100th day of a bankruptcy by General Motors Corp. . The
first few weeks of a Chapter 11 filing by the automaker would
likely be chaotic, given auto industry's links to many parts of the
economy. "After the initial problems, though, the market may have
finally discounted the structural challenges of the U.S. economy,"
said Colas and Klachkin.
Gold at $2,000 an ounce. "Gold is the ultimate capital markets
panic play. A quick double in the metal would be a strong
contrarian indicator that it was time to buy stocks," the analysts
said. "I'm not sure I want to live in a world where gold is $2,000
an ounce. It would mean something is tremendously wrong. From an
equity standpoint, the best thing you can say about gold right now
is that it hasn't broken out to record highs even in the face of
uncertainty," said Colas. Read Metals Stocks.
The Dow Jones Industrial Average changes more than two names at
the same time, and/or adds names to increase the overall number of
stocks in the index. "There are some 'zombie stocks' in the index,
to borrow a popular phrase. The Dow is price weighted, so small
priced stocks are almost irrelevant to the performance of the
index. By the time the senior editors of Dow Jones recognize they
need to change some names in the index, it may be time to the
market as a whole."
New York Stock Exchange daily volume drops to 1 billion shares
for 30 days. "Sometimes you just need everyone to give up to make a
bottom," the analysts reason.
One million jobs lost in a month. Such a bad number could
indicate a bottom, given the lagging nature of the employment
count.
The market starts to rally on bad news. "In prior cycles, bad
news turned into good market performance when it showed that [the]
Fed had the economic reason to cut interest rates. In this market,
the Fed is out of bullets, so bad news is bad. When the market can
rally on bad news, it is a great sign that valuations finally
reflect the current environment," the analysts said.
Stock market favorites see 15%-to-20% declines. When standout
companies -- such as Wal-Mart Stores Inc. and McDonald's Corp. --
"get clobbered you know there is a bottom somewhere nearby," they
said.
CNBC goes off the air. "The entire financial community has a
love/hate relationship with the box in the corner of every trading
room that is permanently turned to the network. The only certain
bottom would be when so few people care that the network has to
close." Read Jon Friedman's CNBC commentary.
On Monday, Geithner remained Treasury secretary and CNBC
remained on the air, as stocks meandered between gains and losses,
with energy stocks leading the gains and telecommunication services
fronting the declines. The Dow industrials were recently off 25.81
points to 6,601.13. The S&P 500 was fractionally higher at
683.18 and the Nasdaq Composite (RIXF) declined 9.45 points to
1,284.40. .