[Click chart to enlarge]

With the markets having plunged at an unprecedented rate over the past year, it helps to look at things in a historical context to see if any parallels exist.

The chart above does a fine job of showing were this current decline ranks in terms of past market disasters. I have featured it before, but it now has been updated through 3/5/09. It’s courtesy of Doug Short, and I appreciate the efforts that went into producing this gem.

To me, there are only 2 lines of interest at this particular time. The gray line, which shows the effects of the crash of 1929 and the superimposed blue line, which demonstrates the drop of the current bear market.

The similarities are striking although the 1929 the initial crash happened much faster than the current one. What turned out to be devastating back then was the rebound after the initial -47.9% drop, which lured many investors back into the market believing that the bull had returned with full force.

That wrong assumption turned out to be deadly for those holding on to their positions for dear life until there was not much left when the bear made its final curtain call after having destroyed the Dow by -89.2%.

Looking at the current bear (blue), which is showing losses of -56.4%, it becomes clear that the bottom may not have been reached. Nobody knows for sure, but those continuing to cling to their buy-and-hold philosophy have learned nothing from history (and bear markets) and may be destined to repeat it.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Despite feeble rebound attempts, the major indexes ended sharply lower as the bear dug in deeper. Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -12.84% thereby confirming the current bear market trend.



The international index now remains -23.22% below its own trend line, keeping us on the sidelines.



For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

I am continuing with a research project and would like to ask for your help. If you have ever used a no load Growth & Income mutual fund, with at least a 4% dividend yield, please share the ticker symbols with me.

It does not matter that this fund may have lost big last year, as long as it is no load and widely available at major brokerage firms.

Either post the ticker symbols in the comment section or send me an email to: ulli.niemann@gmail.com.

Thanks.

With the markets having matched the lows made in 1996, and the S&P; 500 closing below the 700 level a couple of days ago, the question remains where the next support, which may provide a temporary bottom, is.

In times like this, it pays to look at technical support and resistance levels for the various indexes. Let’s focus only on the widely followed S&P; 500 and review what MarketWatch had to say in “Further losses likely before the next major low:”

After concluding its worst six-month span since 1932, the Dow Jones Industrial Average has broken into the 6,000s to start March.

Based on the current backdrop, an eventual retest of the S&P; 680 area looks increasingly likely.

There you have it. What this simply means is this. If a rally materializes, expect it to run into resistance at the 729 level; if that gets pierced, then watch out for the 741 level.

On the downside, support may kick in at around 680 and, if that is taken out, we may be looking at 600, which many forecasters have called to be the ultimate bottom.

Based on feedback from readers, most seem to have understood the hedging concept as outlined in my new e-book pretty well. One reader had this to say:

Many thanks for your post on hedging.

Is not the outcome from a hedging strategy a function of the funds and the short position chosen? I am confused.

The idea is for us to enter the market at an earlier time, after a bottom has been formed, prior to our Trend Tracking Index (TTI) signaling a buy. This early entry will allow us to participate to some degree in any uptrend that materializes. I say to some degree, because at that moment we are holding a hedged position and are not outright long, which limits our potential gains.

On the other hand, as you can see by the examples in my book, if the bottom suddenly drops out and the markets head south, we are well covered and can make money at that time as well.

My idea is not, as you mentioned above, to make this a substitute for being in a money market fund. You are still invested in equity positions and have market risk no matter how well you are hedged. However, you enjoy far more protection from market swings than if you were outright long or short.

To be clear, there will be times when the hedge may not work as well, but I personally prefer the reduced risk, especially when engaging in some bottom fishing. Be sure to follow the five rules as outlined, which will increase the odds of you being successful.

If you are hesitant at all, test it out yourself. Put on a small hedge in an IRA account (so you don’t have to deal with taxes) and invest based on my ideas. Be sure to track your positions on a spreadsheet matrix like shown in the book so you get the feel as to how this hedge moves, before committing a larger amount.

Over the past weekend, I was reading about the severe winter storm that was forecasted to blanket the East Coast. It seems that part of that storm took direct aim at Wall Street and sent the bulls heading for cover as the month of March started out on another sour note.

The major indexes got clobbered again and are now at levels last seen in 1996. The S&P; 500 barely hung on to the 700 level, but there’s a good chance that it will be taken out. That leaves most people wondering as to “how low can we go?”

In the past, I have quoted those who have better skills in the fine art of forecasting than I have. Some, whose opinion I value, have predicted the bottom in the S&P; 500 to be in the 600 to 650 range. Much to the chagrin of the buy-and-hold folks, we’re almost there.

In December, in my blog post “Short-term Bullishness,” I referenced an article by Mish Shedlock who, based on his assessment of the Elliott Wave Theory at that time, pointed to a potential bottom of 600.

While my guess would have been for this bottom to occur either late in 2009 or in 2010, only 3 months after the above posting, we are within striking distance. It’s simply a sign that, economically speaking, things have deteriorated not only at a rapid pace but also with great magnitude.

All bailout programs have failed to stop this trend, and I have repeatedly voiced my opinion against pouring tax payer money into bottomless sinkholes like AIG and many others. It will take time and, unfortunately, more destruction of assets before a bottom will manifest itself.

Fortunately, by simply following trends, we will be in a position to take advantage of such a turnaround whenever it occurs.