Newspaper Articles predicting the Market Bottom of March 2009

A market bottoms when we reach what is known as the "point of maximum pessimism". This means that investors have lost so much money they completely throw in the towel - and shares correct to an undervalued level.


"All the things are in place for the bear market to have ended," he said. "When there's a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I'd like to bet against that."



http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5252775/FTSEs-11-week-high-sparks-hope-that-bull-market-may-be-arriving.html

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5252775/FTSEs-11-week-high-sparks-hope-that-bull-market-may-be-arriving.html

Strategy during crisis investment: Revisiting the recent 2008 bear market

Although we may not know where the bear bottom is, buying in a down market may still lead to losing money. This is definitely true. As long as the purchase is not at market bottom, it may still result in losses for the time being. This is likely to be a short-term loss but compensated by a probable long-term gain. Even if we cannot time the market perfectly, we are definitely better off to “buy low and sell high” then to “buy high and sell low”.

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Prices fell but value intact

Presently stock prices have fallen sharply. 

• Banks are trading at 1x book value, 
• property stocks sold at 50% discount from net asset value, 
• utility stocks trading at single-digit price-earnings ratio providing an earnings yield of more than 10% net of tax and 
• there are many good stocks trading at dividend yield of 2x bank interest rates. 

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Warren Buffett, the second richest man in the world who makes his fortune from stock investment, is busy buying undervalued companies. He sees the value and he also sees prices detaching away from the intrinsic values. He said: “I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turn up.”  

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Catching a falling knife

Some may argue that buying now is like catching a falling knife. If you are not careful, you may be hurt and suffer more losses from falling stock prices. There is no doubt that we may incur short-term losses as long as we do not buy at the bottom. On the other hand, who can determine where and when is the bottom. As long as there are still unknown events or hidden problems, an apparent bottom now may not be the eventual bottom. Since we do not have all the information in the market, it is almost impossible to guess where the bottom will be.

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In most cases, we only realise the bottom after it is over and by that time stock prices are running high with much improved market confidence. Market bottom could be there only for a short period. In most cases, market did not stay at the bottom waiting for investors. It will just move on.

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Since market moves ahead of the economy by about six months, the market bottoms out when the economy is still gloomy, news are still negative, analysts are still calling underweights and most investors are staying at the sidelines. 

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Handling something we know is definitely much easier than dealing with the unknown risks, something which hits from behind without warning. When we invest during a crisis we actually go in with our eyes open. We know it is definitely risky but we also know it could also be very profitable. If we can handle the risk, the risk-reward trade-off will be very rewarding.

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Emphasise strategies

What we need is to buy near the bottom, not right at the bottom. Investors’ frequent question now is when to buy, that is where is the bottom? Perhaps it is more intelligent to ask how much to buy now since nobody will be able to guess where is the market bottom.

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Staggered buying is preferred over bullet purchase which is taking the risk of timing the market bottom. In staggered buying, a pre-determined amount will be set aside for investment over time, say in 10 equal portions.

One common method of staggered investment is dollar cost averaging, an investment scheme made in equal portions periodically, either by a small amount monthly or larger amount quarterly. There are also several variations of staggered investment.

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Anyway, staggered purchase is a preferred method to avoid the anxiety of market timing and the mixed feeling of fear of further downside and worry of missing the market rebound. As long as the market is undervalued, the strategy of staggered investment ensures that investors are in and are benefiting from the undervalued market. 

http://klsecounters.blogspot.com/2008/11/strategy-during-crisis-investment.html    

Market bottoms

A market bottoms when we reach what is known as the "point of maximum pessimism". This means that investors have lost so much money they completely throw in the towel - and shares correct to an undervalued level.

Spotting A Market Bottom

Spotting A Market Bottom
by Chris Seabury (Contact Author Biography)

Stock market bottoms can be challenging to spot. And many times, investors think that they have found this point, only for the major averages to head even lower. The big question many have is: just how do you know when a market bottom has taken place? This requires the tools and indicators that have identified major market bottoms in the past, and an understanding of what they are, how they work and that each indicator must correlate a similar reading.

Stock Market Bottoms

Since the end of World War II, stock prices have generally bottomed six months into a recession. Once it becomes official that the country is in a recession, it is generally a rearview mirror indicator meaning that there have already been two or more quarters of negative GDP growth. On the other hand, when we are emerging out of a recession, we will not know until many months later. This is one of the reasons that it can be so confusing for investors to spot major bottoms taking place. (Learn more about taking advantage of an unstable market, read Profiting From Panic Selling.)

Things to Watch for

Just imagine how wonderful it would have been to buy stocks at bargain prices before major upward moves, such as January, 1975, August, 1982, or even March, 2003. All of those periods share some common patterns that should be observed in order to determine if the market is bottoming.

The Double Bottom Pattern

The double bottom pattern is considered to be one of the most reliable of all the technical patterns. In this pattern, the major market averages will hit a low on heavy volume, then bounce back up and then retest the previous low on light volume.

The key is to watch and see how the averages trade when approaching that second low point. If the averages have a sizable break below the previous low, it is advisable to watch and see what happens. However, if the averages test that low point and then have some type of reversal, this could be a sign that a double bottom pattern is forming.

A second area to watch is volume. This is the total amount of buying and selling that is occurring. Generally, heavy volume on up or down moves shows strong conviction from either the buyers or sellers. When you see the volume lighten up on the downward moves and increase substantially on the upward moves, there is a large amount of buying taking place. After a major market bottom has occurred, you will see this heavy volume accompanied by a strong upward move in the major market averages.

Economic Numbers

Generally, the stock market will bottom and start moving higher before you see it represented in economic numbers or headlines. In many cases, the more negative economic news headlines you see, the better. When the press represents the psychology of the moment, and we start to see consistent headlines showing how bad the economy is, it suggests that the sentiment of the crowd has become so negative that the vast majority have already moved out of their positions.

A second number to pay attention to is the consumer confidence index. During and after market bottoms have occurred, you will see consumer spending and consumer confidence increase. When this happens, consumers are spending more money and corporate earnings are starting to rise.

A third economic number to watch is purchasing managers' index, which measures the economic health of the manufacturing sector. When these two numbers have bottomed, then started to consistently rise for more than three months in a row, the manufacturing and service sectors are on the road to expansion once again. (For further reading, see Economic Indicators For The Do-It-Yourself Investor.)

High Yield Bonds

Another indicator to watch is the high yield bond spread. High yield bonds are the bonds issued by companies who have a high possibility of default. To be able to attract investors to loan them money, they have to offer a higher interest rate. When lending standards are becoming easier, you will see the amount of interest or the spreads on these bonds drop. When this happens, it is a sign that investors and banks are becoming more willing to take risk. This would signal that economic conditions are starting to improve. (For more, see Top 6 Uses For Bonds.)

Copper Prices

Copper prices are a good indicator as to how strong or weak the global economy is. This metal is used in economic expansion in products such as pipes, radiators, air conditioners, electronics and computers, to name a few. Watching to see if the price of copper has bottomed or has room to fall further will help determine the overall worldwide demand for the metal. When demand has increased, you will start to see prices rise; when demand is falling, prices will follow.

Look for copper prices to finish declining and start to move in a similar upward pattern with the financial markets. This would be a real-time signal that manufacturers and home builders are seeing their businesses pick up. To keep up with the increases in demand, they have to use more copper, causing the price to rise. (For more, see Guard Your Portfolio With Defensive Stocks.)

The Bottom Line

Market bottoms are accompanied by a variety of factors, such as:

• high amounts of fear,
• a decrease in the volume on downward moves,
• a large increase in the volume on upward moves,
• double bottom patterns,
• improving economic numbers,
• the spread on high yield bonds narrowing and
• an increase in copper prices.

However, it is important to remember that the financial markets look forward at least six months prior to any real improvement in the economic numbers. By using all of the indicators together, you have the key to spotting a market bottom. (For more, see Market Bottom: Are We There Yet?)

by Chris Seabury, (Contact Author Biography)

http://www.investopedia.com/articles/economics/09/spotting-a-market-bottom.asp