The Bear Market Never Ended S&P500 chart

S&p penetrate level1 support/shield, level 2 support is just so near @907, any close lower than that level consider going into a correction mode of this 3 mth rebound..

ByBert Dohmen, RealMoney Contributor
On Monday June 15, 2009, 2:31 pm EDT
The stock market has had an eye-catching rally. Everyone is talking about the S&P 500 gaining 40% since the March 6 low. But we have to put that into perspective. The index dropped 46% from the October 2007 top to the March low. Just to get back to the level of October 2007, it needs almost a 100% gain. So far, it is quite short of that. In fact, I believe it will take a decade or much longer to get back to the 2007 top.
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During the Great Depression, the first phase of the bear market ended in 1930. Then the Dow Jones Industrials rallied 51%. But after that, the Dow plunged another 64% into the 1932 low.
The bulls say that we have already seen the equivalent of the 1932 bottom. To me, that seems improbable. At the 1932 bottom, the Dow had lost 89%. Therefore, the bottom this March doesn't qualify as "the bottom" at all. In fact, given that we had the greatest speculative bubble of modern times, using the highest degree of leverage, and creating $1.2 quadrillion of derivatives which are being "delevered," the final bear market bottom should be much, much lower. At a minimum, the economic contraction will be much longer. We expect it to last at least until 2017, of course with periodic rallies.
The Great Depression bear market bottom was three years after the prior bull market top. That would give us at the earliest a bottom in 2010. But remember, the 1932 bottom didn't end the Depression.
Escalating inflation could reduce the amplitude of the next bear market phase by virtue of the fact that stocks could become inflation hedges, just as in the late 1970s. Then stock prices would rise in nominal terms, but not in inflation-adjusted terms. In other words, the value of the currency declines and stocks become a hedge against the declining purchasing power of the currency. With the massive money creation we are seeing, this is a possibility.
In our view, we are currently seeing a typical bear market rally. In the last bear market that started in March 2000, there was a rally late in the year going into January 2001. Many high-profile analysts proclaimed it to be the start of the new bull market and advised "loading up the truck." We gave a new sell signal late in January 2001. That was right on target. And that's when the bear market really got serious.
In early March this year, when we called the exact day of the bottom, we said the rally would go into late summer but it would be very volatile. We also said that it would be a bear market rally. We don't have a crystal ball, but we depend on our indicators to give us the clues as to the top. If we are right, this could turn into a painful trap for the bulls. It would present another great opportunity to sell short at the top.
Sentiment right now is approaching euphoric levels among the analysts. The bullish consensus of index traders is now at the level last seen at the bull market top in October 2007.
Furthermore, corporate insider selling vs. buying, by the people who know how their business is likely to be over the next year, is at one of the highest levels on record. The sell/buy ratio is over 8, meaning that for every share purchased, they have sold eight. Obviously, they are not that optimistic.
The global financial crisis was caused by an implosion of excessive debt, due to uncredibly high leverage employed by financial institutions. The banking system has so far written off about $1.3 trillion of bad stuff. One very knowledgeable investment firm estimates that there is another $3.8 trillion to be written off. Geithner's PPIP plan has been shelved because no bank was interested in selling its bad assets. Why not? Because this would create a "market value," which other assets would have to be valued at. Evidence suggests that the banks are carrying some assets at almost three times current market value.
The government is trying to resolve the excessive debt problem by creating trillions of dollars of more debt. That's always a strategy doomed to fail. You see, the current problem is that the excessive debt cannot be serviced. Therefore, creating even more debt which cannot be serviced only worsens the problem, especially in a deteriorating economic environment. A burst bubble can not be reflated. Be prepared.