Bear market buzz builds as stock market grows more unpredictable


A grizzly bear in the wild

The bear market buzz has been getting louder as recent events scare investors, but while some analysts see a crash, others see a correction. Flickr photo.

Talk of a bear market (depressed stock market) has been circulating for most of 2010. But intense stock market volatility throughout May isn’t causing analysts to say the sky is falling yet. Some say the bear market signals aren’t a coming stock market crash, but merely stock market correction 2010. Others say the market has bottomed out already and can’t get any worse. One thing everyone seems to agree on is that no one really knows whether the bull market that began in March 2009 is about to end.

New bear market?

The bear market buzz began as early as January this year when reported on the Elliott Wave Financial Forecast. The Elliott Wave, which successfully called the 2008 stock market crash and the 2009 stock market rebound, said a bear market would return in full force in 2010. It compared the situation to a brief stock market bounce after the initial stock market crash in 1929 and predicted a similar collapse. Other investment gurus, like Richard Russell, author of the Dow Theory Letter, have also predicted a stock market crash and urge clients to get liquid for quick cash. As the market tanks and rebounds depending on the news of the hour, that hasn’t been a consistently profitable position.

Stock market correction 2010

The bear market buzz is easy to understand, considering the confluence of recent events such as the Flash Crash, European debt crisis, the financial reform bill and the oil spill in the Gulf of Mexico. Investors, a skittish breed in the best of times, are lacking confidence now. But Anthony Mirhaydari, reporting on MSN, said a new bear market isn’t just around the corner. Mirhydari said long-term breadth, earnings, global economic growth and interest rates all suggest that higher highs are ahead for stocks. Also, there is historical precedent for a correction of the magnitude that occurred in May, as part of a long-term bull market.

Stock market volatility an overreaction?

Recent events like the May 6 Flash Crash have stoked a high fear index in the stock market. And the European debt crisis has been a wake up call for investors. But the new bear market buzz is overblown said Phil Dow, director of equity strategy RBC Capital Markets in Minneapolis, in an interview with Some hard hit stocks have been oversold as investors turned chicken. May’s stampede into U.S. Treasuries is taken as a clear sign that investors overreacted to the European debt crisis. Dow told that energy, tech and health care stocks could be due for a comeback once investors realize that new bear market fears may just be stock market correction 2010.

Nimble traders thrive on volatility

It’s normal to expect some sort of a bear market given the duration of the present bull market, according to A 5 percent to 10 percent correction in the S&P 500 is normal, and when it happens it’s a good thing, helping to restore the market back to health. Also, the best trading opportunities, both long and short, often arise during market corrections. And nimble investors could find many opportunities to make money as volatility is expected to increase further before it subsides.