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Studying Similar Sharp Declines & Their Bottoms

http://www.investorsinsight.com/blogs/richard_schwartz_principles_of_the_stock_market/archive/2008/10/07/studying-similar-sharp-declines-amp-their-bottoms.aspx

The Principle of Understanding History & The Principle of Technical Analysis. Written Tuesday, October 7th, 2008

OK, yesterday I heard one analyst, I believe it was Liz Ann Sounders, chief investment strategist for Charles Schwab say the recent sharp year-over-year (yoy) stock market decline is only rivaled by the year 1974 and two years back in the 1930s. I could make a good guess which years in the 1930s those steep yoy declines came but I went back and checked anyway because those are the years along with their stock market bottoms that I want to start studying, their charts and their economic, financial and psychological backdrops as well. All three years were big bad bear market years as yoy declines of -30% or more would have to be. 1974 was the year our last Papa Bear market ended, and was the second year of that bear market. 1931 was smack in the middle of that big Papa Bear (stocks bottomed May 1932 and in rallied the second half, preventing 1932 from making the list). And 1937 was the year the five year, first bull market after the Papa Bear of 1929-1932 ran out of steam and the economy ran off the cliff and we had a short but very severe Mama Bear market. (I distinguish Papa bear markets from Mama bear markets by their lengths, the 1937-1938 bear market lasting only one year.) A first, brief cursory review of those big down years is as follows:



· 1974. The total decline in the Dow came to -45.1% in just under two years. The stock market’s bear market ending was immediately preceded by a most severe leg down in stock prices, losing -27% in less than two months from early August through October 4th. The ultimate bottom was characterized by the Dow Transports NOT making one last new low along with the Dow Industrials in early December. Schwartz View: Diverging in other words.

· 1931. The total decline in the Dow came to -89% and took just under three years, September 1929 to July 1932. 1931 came in the middle of that horrific Papa Bear market so that’s dismaying for us today. But, similar to the bottom in 1974, the 1932 bottom came after a grinding last leg down in stock prices. From March through July 1932, we saw an inexorable day-after-day, four-month decline totaling -54%. Whew! Schwartz View: Trading volume was the distinguishing characteristic of that market bottom, shrinking up noticeably.

· 1937. The total decline in the Dow came to -49% and took almost exactly one year. The bulk of the 1937 Mama Bear market occurred primarily during a sudden market collapse from August through December and encompassed another extended, depressing, sharp down leg of -40%. In October of this four-month leg down, trading volume spiked during a mini crash but that wasn’t the final bottom. Schwartz View: The bottom came on much reduced trading volume in March of the following year and prices didn’t really move up until volume again picked up, in about June.

SCHWARTZ SUMMING UP. My first, quick gleanings from reviewing past market bottoms after the three most severe year-over-year declines in stock prices, like one we're in right now, indicate we might look for anultimate market bottom to include: (1) a sharp leg down just preceding the bottom, (2) a divergence between the Dow and the Dow trannies and/or (3) sharply lower trading volume for some weeks before the ultimate bottom. Stay tuned for more to come while hanging tough.

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From Briefing.com: 4:30 pm : The long and short of things Tuesday is that the stock market remained biased toward the long side. There were half-hearted attempts to drive the market lower, but as soon as they started, it wasn't long before they were snuffed out with renewed buying interest.

For the most part, the session progressed on an unventful note. The major averages held to narrow trading ranges, sporting modest gains for a good part of the day thanks to the relative strength exhibited by the industrial (+1.1%) and semiconductor (+2.3%) sectors. However, there was a late-day breakout when the S&P 500 cleared last week's high of 1169.84.

The late move was a broad-based affair that saw all sectors participating, but a surge in buying interest in the influential financial sector (+0.8%) lent some added weight to the advance, as did a continuation move in the red-hot consumer discretionary sector (+0.4%). The latter is up 16.5% from its intraday low on Feb. 5.

By and large, the elements of an economic recovery trade were evident again Tuesday.

The basic materials (+1.3) and technology (+0.9) sectors joined with the industrial and financial sectors to outperform the market. Additionally, small-cap stocks, which trailed early, regrouped and handily outperformed their large-cap counterparts. The Russell 2000 gained 1.1% and is now up 19% from its intraday low on Feb. 5.

The stock market was hindered early by reports discussing a rift developing in the eurozone with respect to EU-funded aid for Greece should it be needed. The headlines on that matter changed by the hour, yet the headlines tended to favor the notion that Germany will ultimately come around to support an EU plan for Greece should it be needed.

That favorable sense of things was reflected in a narrowing of 5-year credit default swap spreads for all members of the PIIGS contingent, which includes Portugal, Italy, Ireland, Greece and Spain.

The stock market at the same time couldn't help but respect the idea that a period of consolidation is in order after such a big run in the last six weeks. Accordingly, the market traded gingerly in the early going. Soon, though, the recognition that stock prices again held up to selling pressure attracted more buyers fearful of missing out on further upside (and/or shorts fearful of seeing further upside).

The trade then fed on itself with the late-day break of technical resistance. The end result was that the major averages closed near their best levels of the day and the S&P 500 recorded its best closing level in 18 months.

The 10-year Treasury note dropped 7 ticks, bringing its yield up to 3.69%. Losses were extended as stocks rallied late.

The $44 bln 2-year note auction went reasonably well with a bid-to-cover of 3.00, but it was still regarded by the market as a slight disappointment given the high yield of 1.00% and the understanding that the bid-to-cover trailed the 3.10 average of the past 10 auctions.

Tuesday was a day that predominately belonged to stocks, although the U.S. Dollar Index (+0.3%) fared well in the wake of weaker-than-expected inflation data seen in the U.K., the political discord surrounding Greece, and the optimism about economic prospects in the U.S.

February existing home sales declined 0.6% (consensus -1.1%) in February to a seasonally adjusted annual rate of 5.02 mln units (consensus 5.00 mln). That was 7.0% higher than the year-ago period.

On a related note, Treasury Secretary Geithner testified on housing finance/reform before the House Financial Services Committee. His remarks went about as expected as he acknowledged the government-sponsored enterprises won't exist in their current form after changes are made, that reforming them will be complicated, and that nationalization is not an attractive option.

The spotlight in Washington D.C., though, shined on the White House where President Obama signed the Health Care Reform Bill into law.

Trading volume across U.S. stock exchanges picked up some from Monday. A total of 8.06 bln shares traded, which is still 7% below the 50-day moving average.

Volume failed to top 1.0 bln shares at the NYSE, yet advancing issues easily outpaced declining issues by a nearly 3-to-1 margin. At the Nasdaq that margin was compressed to a 2-to-1 margin in favor of advancing issues. DJ30 +102.94 NASDAQ +19.84 SP500 +8.36 NASDAQ Adv/Vol/Dec 1794/2.30 bln/861 NYSE Adv/Vol/Dec 2195/984 mln/815

5:11PM Linear Tech: International Trade Commission Judge finds 25 additional patent violations of Linear Technology's burst mode invention by Advanced Analogic Technologies (LLTC) 28.98 +0.14 : Co announced that on March 18, Administrative Law Judge Carl Charneski of the U.S. International Trade Commission (ITC) issued an enforcement initial determination (ID) finding that 25 additional Advanced Analogic Technologies Inc. voltage regulator products infringe Linear's U.S. Patent No. 6,580, 258 ('258 patent) and therefore AATI has violated a previous exclusion order issued by the ITC. This patent protects Linear's "sleep mode" invention, comprising circuitry that significantly extends battery life in a range of portable electronic devices such as laptop computers, cell phones and PDAs by allowing the device to "sleep" when little current is needed.

4:08PM Jabil Circuit beats by $0.01, reports revs in-line; guides Q3 in-line (JBL) 18.36 +0.59 : Reports Q2 (Feb) core earnings of $0.29 per share, excluding non-recurring items, $0.01 better than the First Call consensus of $0.28; revenues rose 4.1% year/year to $3.0 bln vs the $3.0 bln consensus. Co issues in-line guidance for Q3 (May), sees core EPS of $0.30-0.36, excluding non-recurring items, vs. $0.32 consensus; sees Q3 revs of $3.1-3.3 bln vs. $3.12 bln consensus.

4:01PM Microchip and Google partner to enable easy development of Google PowerMeter designs for smart energy monitoring (MCHP) 29.07 +0.27 : Co announces the result of its strategic partnership with Google PowerMeter--the first Reference Implementation of the Google (GOOG) PowerMeter API for embedded developers. Designers now have a quick and easy way to enter the global energy-conservation market, by creating products for the measurement and monitoring of energy usage with Microchip's Google PowerMeter Reference Implementation and its broad portfolio of 16- and 32-bit PIC microcontrollers, energy-measurement ICs, Ethernet controllers, and radios for ZigBee and embedded Wi-Fi wireless networking.

11:01AM Bell Microproducts' Latin America division signs agreement with Dell (BELM) 5.37 +0.07 : Co announced that its Latin American division has signed a distribution agreement with Dell (DELL). Under the terms of the agreement, Bell Micro will distribute Dell laptops and netbooks to retailers and SMBs throughout Latin America. Dell products will be shipped from Bell Micro's Miami warehouse to Latin America. In the future, shipments are expected go directly from Dell's manufacturing facilities in China to Bell Micro's facilities in Chile and Brazil. Dell products will be available through Bell Micro Latin America beginning in late March, 2010.

Motorola (MOT) announces that it has shipped more than two million WiMAX devices, including customer premises equipment and dongles. This milestone occurred in February 2010 - just five months after Motorola shipped its one millionth device in September 2009...

7:00AM Tessera Tech licenses OptiML focus technology to AzureWave (TSRA) 20.48 : Co announced that AzureWave Technologies Inc. has licensed Tessera's OptiML Focus image enhancement solution, which provides automatic focus capabilities in camera-enabled devices to deliver high-quality images with no moving parts. AzureWave, based in Taiwan, will integrate the innovative technology into its next-generation camera modules for laptop computers, webcams, cell phones and other camera-enabled devices.

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From Briefing.com: Weekly Recap - Week ending 10-May-13

Dow +35.87 at 15118.49, Nasdaq +27.41 at 3436.58, S&P +7.03 at 1633.7

After enduring a choppy session, the S&P 500 settled higher by 0.4% to end the week with a gain of 1.2%. The Nasdaq outperformed the benchmark average throughout the day as the tech-heavy index advanced 0.8%.

The outperformance of the Nasdaq was largely due to the relative strength of biotech as the iShares Nasdaq Biotechnology ETF (IBB 180.02, +5.13) settled higher by 2.9%. The sharp gains in biotech also provided support for the health care sector, which ended atop the leaderboard.

Meanwhile, other tech stocks traded in mixed fashion. The largest sector component, Apple (AAPL 452.97, -3.80), lost 0.8%, but many other large cap names ended with modest gains. Chipmakers also finished among the outperformers after NVIDIA (NVDA 14.54, +0.63) beat on earnings and revenue. The broader PHLX Semiconductor Index rose 0.7%.

While the Nasdaq spent the entire day in positive territory, the Dow and S&P 500 underperformed as commodity-related sectors lagged.

The energy space was the biggest laggard as the sector lost 0.5%. Lower price of crude oil contributed to the sector weakness as the energy component slipped 0.6% to $95.86 per barrel. Oil was down as much as 3.1% at the start of today's session, but was able to pare its losses intraday.

Similar to oil, metals sold off early, but regained some of their losses into the afternoon. Gold closed down 1.8% at $1442.80 per troy ounce while silver shed 0.7% to end at $23.75 per troy ounce. Copper also displayed losses early, but ended the session with a gain of 1.2% at $3.38 per pound.

The weakness in metals pressured the materials sector early on, but the group was able to climb off its lows to end flat.

Notably, the industrial sector underperformed despite the strength of transportation-related stocks. The Dow Jones Transportation Average added 0.6%.

Cyclical groups were led by the discretionary sector. Retailers outperformed notably after Gap (GPS 40.99, +2.18) reported better-than-expected April same store sales. The broader SPDR S&P Retail ETF (XRT 76.45, +1.08) settled higher by 1.4%.

Homebuilders also provided support for the discretionary sector as the SPDR S&P Homebuilders ETF (XHB 31.91, +0.44) ended higher by 1.4%.

Today's economic data was limited to the April Treasury Budget, which showed a surplus of $112.90 billion. This was better than the surplus of $112 billion expected by the Briefing.com consensus.

Week in Review: S&P 500 Climbs to New Record Highs

On Monday, April retail sales and retail sales ex-auto will be reported at 8:30 ET while March business inventories will be released at 10:00 ET. Week in Review: S&P 500 Climbs to New Record Highs On Monday, the major averages ended on a mixed note as the S&P 500 rose 0.2% while the Dow Jones Industrial Average shed five points. With no economic news of note and two major foreign markets closed (Japan and the United Kingdom), investors reacted to quarterly earnings. The now-familiar pattern of anemic top-line growth remained in effect as quarterly results from Sysco (SYY 34.20, +0.04) and Tyson Foods (TSN 24.75, -0.13) missed their marks. The results weighed on the third-best performing sector of the year as the SPDR Consumer Staples Select Sector ETF (XLP 41.16, +0.16) ended lower by 0.7%.

Tuesday saw equities settle with modest gains as the S&P 500 rose 0.5% to close at a new all-time high while the Dow notched its first close above 15,000. The energy sector charged out of the gate as EOG Resources (EOG 133.58, -2.50) displayed notable strength after beating on revenue. The growth-sensitive sector ended with a solid gain even as crude oil ended lower by 0.7% at $95.47. Most other cyclical sectors finished ahead of the broader market and the Dow Jones Transportation Average outperformed as well. The bellwether complex advanced 1.6% to a fresh record high as 18 of 20 components settled in the black.

On Wednesday, the S&P 500 settled higher by 0.4% to register its fifth consecutive gain. Cyclical sectors appeared weak during the opening minutes, but most economically-sensitive groups were able to rebound, and finish in the lead. The materials space displayed strength from the start as industrial metals traded higher after China reported a wider-than-expected trade surplus. Gains in copper were notable as the red metal advanced 1.7% to 3.361 per pound.

Thursday saw the S&P 500 register its first lower close of the week. The benchmark average sank to its lows amid afternoon speculation that a well-known reporter, who is considered to be a Fed-insider, may be hinting at changes to the Federal Reserve's quantitative easing program. Although equities fell after the rumors began making the rounds, the earlier gains were shaky at best as declining issues outpaced advancers. The CBOE Volatility Index (VIX 12.78, -0.35) settled higher after spending the entire day in positive territory, suggesting downside protection was in demand throughout the session. ..NYSE Adv/Dec 1900/1100.

 
 Index	   Started Week	  Ended Week   Change	% Change    YTD % 
 DJIA	     14973.96	  15118.49    144.53	   1.0	    15.4 
 Nasdaq	      3378.63	   3436.58	57.95	   1.7	    13.8 
 S&P 500	1614.42	   1633.70	19.28	   1.2	    14.5 
 Russell 2000   954.42	    975.16	20.74	   2.2	    14.8

Amtech Systems (ASYS) reported second quarter loss of $0.22 per share, $0.11 better than the Capital IQ consensus of ($0.33), while revenues fell 62.4% year/year to $8.11 million versus the $9.77 million consensus.

Brooks Automation (BRKS) reported second quarter earnings of $0.01 per share, $0.03 better than the Capital IQ consensus of ($0.02), while revenues fell 16.3% year/year to $116.6 million versus the $107.95 million consensus. Revenues for the Brooks Product Solutions segment increased 36.2% sequentially due to overall industry recovery in the second quarter of fiscal 2013. Revenues for the Brooks Global Services segment increased 4.4% on a sequential basis compared to the fiscal first quarter of 2013. Revenues for the Brooks Life Science Systems segment declined sequentially to $9.1 million compared to $14.1 million for the prior quarter. Order bookings for the second quarter of fiscal 2013 increased sequentially 31.0% to $121.3 million, compared to order bookings in the fiscal first quarter of 2013 of $92.6 million. The company issued downside guidance for the third quarter with adjusted EPS $0.01-0.05 versus the $0.11 Capital IQ consensus and revenues of $116-124 million versus the$128.93 million Capital IQ consensus.

Universal Display (PANL) reported first quarter GAAP loss of $0.10 per share, $0.02 worse than the GAAP Capital IQ consensus of ($0.08), while revenues rose 18.9% year/year to $14.98 million versus the $14.35 million consensus. The company reaffirmed guidance for fiscal year 2013 with revenues of $100-125 million versus the$117.81 million Capital IQ consensus. "Commercial material revenues were up 40% in the first quarter as we began shipping production quantities of both green emitter and host materials...With two different color materials shipping at production volumes, we now have more than twice as much content in commercial products than at any previous point in the company's history. As we build our organization to capitalize on this emerging market, we believe we can achieve attractive gross margins and leverage our fixed infrastructure to create excellent returns for shareholders." FY13 Guidance Details: The company's arrangement with SDC provides a substantial amount of visibility into its potential future financial performance. Although the OLED industry is still at a stage where many variables can have a material effect on growth, in an effort to increase our transparency, Universal Display is providing the following financial guidance. Again with the caveat that the OLED industry is still in an early stage, the company believes that its revenues will be in the range of $110 million to $125 million for fiscal 2013.

NVIDIA (NVDA) reported first quarter earnings of $0.13 per share, $0.03 better than the Capital IQ consensus of $0.10;, while revenues rose 3.2% year/year to $954.7 million versus the $940.38 million consensus. The company issued downside guidance for the second quarter revenues of $955.6-994.5 million versus the $1 billion Capital IQ consensus Estimate; gross margin flat QoQ (54.3% GAAP). "The success of Kepler-based GPUs within and beyond the PC helped drive another quarter of record margins. Kepler is capturing share among gamers, strengthening our workstation and supercomputing segments, and will fuel new growth opportunities for our GRID server graphics solutions. With Tegra 4 devices and Tegra 4i certification on the way, we're gearing up to return to growth in the second half."

Priceline.com (PCLN) reported first quarter earnings of $5.76 per share, $0.47 better than the Capital IQ consensus of $5.29, while revenues rose 25.6% year/year to $1.3 billion versus the $1.28 billion consensus. Non-GAAP gross profit for the 1st quarter was $1.03 billion, a 38.6% increase from the prior year. Non-GAAP net income in the 1st quarter was $297 million, a 34.6% increase versus the prior year. "Unit growth in the Priceline Group's global hotel business held steady in the 1st quarter at 38% versus the prior year," said Jeffery H. Boyd, Chairman and CEO of The Priceline Group. "International gross bookings growth of 43% in the 1st quarter reflects continued strong performance of our international brands around the world. Domestic gross bookings growth accelerated in the quarter with improving results in our hotel and rental car businesses, aided by the roll out last year of our Express DealsSM semi-opaque service." The Priceline Group said it was targeting the following for 2nd quarter 2013: Year-over-year increase in total gross travel bookings of approximately 30% - 37% (an increase of approximately 27% - 34% on a local currency basis). Year-over-year increase in international gross travel bookings of approximately 36% - 43% (an increase of approximately 33% - 40% on a local currency basis). Year-over-year increase in domestic gross travel bookings of approximately 5% - 10%. Year-over-year increase in revenue of approximately 15% - 22% (Approxately $1.524-1.591 billion Capital IQ consensus $1.636 billion). Year-over-year increase in gross profit of approximately 26% - 33%. Adjusted EBITDA of approximately $560 million to $595 million. Non-GAAP net income per diluted share between $8.87 and $9.45, Capital IQ consensus $9.60

1:29 pm Tech Sector trading +0.4% and outpacing the broader market
The tech sector is trading higher today, just ahead of gains in the broader market. Semiconductors are showing relative strength with the SOX trading 0.6% higher. Within the chip index, NVDA (+3.2%) is a notable standout. Among other major indices, the SPY is trading 0.2% higher today, while the QQQ and the NASDAQ are trading 0.5% higher on the session. Among tech bellwethers, GOOG (+0.9%) is showing notable strength, while AAPL (-0.1%) is under slight pressure.