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Tip of the Iceberg??

Tip of the Iceberg??

September 29, 2022

Key Takeaway

Let me be the first to point out that no two bear market corrections are the same, but sometimes they can behave in similar fashions at various stages of a correction. Only time will tell as to how close they ultimately track one another. The chart below illustrates the S&P 500 from it's peak in October 2007 through it's bottom in June 2009. The market hit a double bottom (with lots of chatter) after 11 months and after already loosing -23%. Once it was apparent that this double would not hold, the bottom fell out and the market did not find its final bottom until another 6 months and losses of another -45%.

So when looking at the S&P 500 so far this year, you might find the similarities to be quite unnerving. Here we are 9 months in (vs. 11mos). Down -25% (vs. 23%) and sitting right on a double bottom. There is always a lot of chatter around a double bottom because there is essentially a "tug-o-war" between the market bulls and bears. Double bottoms are a very natural place for buyers to return to the market, especially when down this much, and for things to turn around....unless they don't. When double bottoms don't hold, the "double" essentially gets taken off the table, and then you look for support elsewhere - sometimes much lower.  

Of course anything can (and will) happen, which is why I typically do not like to forecast where I think the market will be in 6 months, or even 6 weeks. But if we look at a much longer chart of the S&P 500, there is a good support down another -12-15%. Again, the double bottom may hold and all the damage is done. However, if it turns out to be just the tip of the iceberg, it could get much worse. I won't bore you with my very opinionated opinions, but let's just say that we have a whole bunch of cash on the sidelines for our clients at this point.