Generally speaking, throughout the decline of a bubble, there is a new theme every month or so. And in-between these periods, the “no news is good news” sentiment is usually cause for a market rally in the early stages, as denial remains a strong force. At a later stage when “no news” isn't enough to lift the market, pundits and CEOs come out and claim that the worst is over. Let's look back at the past 18 months and see how things played out.
A Look at the Recent Past
In late February of 2007 we saw the first signs of problems with mortgage companies that were buried deep in sub-primes.
(1) After a drop of around 500 points, the market rallied to new highs by late April.
(2) Next, the move from early March to mid-July was huge, the Dow having moved from 12,000 to 14,000.
(3) Then the avalanche began and the market dropped by 1200 points over about 4 weeks.
(4) But one day in particular it fell to around 11,500 intraday and closed up significantly.
(5) That intraday low was a key level that I knew would be retested down the road. In fact, I was certain it would fall through it based on what I knew about the troubles in the real estate market and banks.
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