Bear Market Rally: Happy Anniversary

Exactly two years ago today, at the depth of a severe recession not seen since the Great Depression, a bear market rally in stocks was born. Hard to believe, but two years ago, on March 9, 2009, the Dow Jones Industrial Average was trading at 6,440. Today, it trades 90% higher at 12,214. Those investors who were brave enough to jump into stocks in the spring of 2009 (hopefully, PROFIT CONFIDENTIAL readers who heeded our direction) have seen their money close to doubling in two years. So what happens now? Where do we go from here?Exactly two years ago today, at the depth of a severe recession not seen since the Great Depression, a bear market rally in stocks was born.

Hard to believe, but two years ago, on March 9, 2009, the Dow Jones Industrial Average was trading at 6,440. Today, it trades 90% higher at 12,214. Those investors who were brave enough to jump into stocks in the spring of 2009 (hopefully, PROFIT CONFIDENTIAL readers who heeded our direction) have seen their money close to doubling in two years.

Jumping into the stock market in early 2009 was a classic contrarian investor play. The opportunity to bet against a true “herd mentality” market only happens once every couple of years or so. In fact, I can name each play over the past two decades where smart contrarian investors won big betting against the popular trend in various investment classes.

So what happens now? Where do we go from here?

There is no firm consensus about the stock market right now. Sure, there are more bulls than bears today, but the statistics I follow show that bears are not a rarity today. Today, there remains concern surrounding the economy and the stock market, so I cannot tell you to bet against stocks because optimism prevails today.

What I can tell you, and what I have been telling my readers throughout this bear market, is “don’t fight the Fed`” and “don’t bet against the trend.” It has been a strong uptrend for stocks for two years now—do not bet against that trend until it is broken. Similarly, the Federal Reserve has been the stock market’s best friend over the past two years. When the Fed has interest rates at zero and the monetary policy is expansive, do not go against the Fed’s good intentions.

But have no fear, my dear reader, opportunity is coming.

Just as an opportunity was born two years ago today for contrarian investors, we will see opportunity soon on the opposite side of the spectrum. There is no doubt in my mind that this bear will do an exceptional job at convincing investors that the worst for the economy is behind us, only good days lie ahead and the stock market is a safe place for investors to put their money. Optimism will soon reign again and we’ll have an unprecedented opportunity to bet against the optimism and make good money from it, just like true contrarians do.

Michael’s Personal Notes:

I read the job numbers report and just shake my head. The method by which the unemployment rate is calculated in the U.S. is old and antiquated. I don’t want my readers buying it for a moment.

According to the U.S. Labor Department, the unemployment rate fell to 8.9% in February from 9.0% in January. Really, who believes those numbers? What about the hundreds of thousands of Americans who have run out of unemployment benefits and have just stopped looking for work? Why aren’t we given those numbers?

About nine million U.S. jobs were lost during the recession. If the U.S. can consistently add 200,000 new jobs a month (which I doubt it can), it would take 45 months for us to be at the same place we were with jobs before the recession started. As they say in Texas, “ain’t gonna happen.”

Where the Market Stands; Where it’s Headed:

On this second anniversary of the bear market rally that was born exactly two years ago today, the Dow Jones Industrial Average opens this morning up 5.7% for 2011. If it were not for skyrocketing oil prices, I believe that this market would be much higher.

In the immediate term, the stock market will continue to move higher. Short- to long-term, I’m bearish on stocks.

What He Said:

“A Stock Market’s Obituary: It is with great sadness that we announce the passing of the Dow Jones Industrial Average. After a strong and courageous battle, the Dow Jones fell victim to a credit crisis and finally succumbed on Friday, October 3, 2008, when it fell decisively below the mid-point between its 2002 low and its 2007 high.” Michael Lombardi in PROFIT CONFIDENTIAL, October 6, 2008. From October 6, 2008, to November 27, 2008, the Dow Jones Industrial Average experienced one of its biggest two-month losses in history.