So long farewell, auf weidersehen good-bye…. And don’t let the door hit you in the-you-know-what on the way out.
That is my parting shot to the most difficult year I have ever seen for the markets. It makes my head ache just to think about it. Compared to 2008, the crash of ’87 was nothing but a bump in the road.
But alas, I certainly had plenty of company in my market misery. After all, 2008 was the practical equivalent of the 100 year storm—one you had to actually live through to believe.
And in truth it was as mind numbing as it gets. In fact, it was so bad that I’m sure it cost me a couple years on the back end.
So how bad was it?
Well, with nearly $7 trillion in stock market value wiped out last year, most investors considered it a success if there losses were less than the market benchmarks, which got pummeled.
Here, by the way, are how those broad market indexes finished up for the year:
- The Dow Jones industrial average dropped 33.84 percent, its third-largest decline ever and the biggest decrease since 1931.
- The S & P 500 lost 38.49 percent, just slightly better than the severe decline of 1937.
- And the Nasdaq composite index, created in 1971, posted its worst year with a 40.54 percent plunge. That was actually worse than the bursting of the tech bubble in 2000 when the technology- heavy index only lost 39.3 percent.
Ouch.
But if there was one word to describe it all that word would have to be volatile— as in like nitroglycerin. And while that made for a trader’s playground, it was extremely tough on buy and hold types.
In fact, the market was so prone to wild swings, there were 18 days in the last three months when the S&P 500 moved up or down by 5%. By comparison, in the prior 53 years there were only 17!
And of the 20 biggest daily point losses in the Dow’s 112-year history, 13 of them occurred in 2008. That includes the two largest point drops – 777.68 on Sept. 29 and 733.08 on Oct. 15.
Meanwhile, among the Dow’s 20 largest daily point gains of all time, 13 of them also happened last year, including the 936.42 jump on Oct. 13.
In short, it was nothing but whiplash. Or better yet, it was either sadness or euphoria as one record after another fell.
Here are few of them courtesy of Dow Jones, as big moves dominated both the upside and the downside.
Take a look:
The Greatest Dow Jones Industrial Average daily point gains of all time:
1. Oct. 13, 2008 ……+936.42…….. +11.08 percent
2. Oct. 28, 2008 ……+889.35…….. +10.88 percent
3. Nov. 13, 2008 ……+552.59…….. +6.67 percent
4. March 16, 2000……+499.19…… +4.93 percent
5. Nov. 21, 2008 ……+494.13……… +6.54 percent
The Greatest Dow Jones Industrial Average daily point losses of all time
1. Sept. 29, 2008…… -777.68……. -6.98 percent
2. Oct. 15, 2008…….. -733.08…….. -7.87 percent
3. Sept. 17, 2001……. -684.81……. -7.13 percent
4. Dec. 1, 2008……… -679.95 …….-7.70 percent
5. Oct. 9, 2008……….. -678.91…….. -7.33 percent
And if that doesn’t give you an idea of how bad last year was, there is this great visual I pulled up. After all, a picture is worth a thousand words.
It is the 52 week performance of the stocks in the S&P 500 as of the close on Wednesday.
It’s not for the queasy…
Click here for the interactive version
As for the broader markets, things have been looking up lately which is certainly welcomed. Credit markets are loosening up, the VIX is coming off (as I type it is below 40), and the volatility that made for so many wild days in ’08 is smoothing out. On top of that, there is a general change in sentiment on the Street that the bottom was reached.
And If November was the bottom—and we believe it was—then history would suggest a better 2009.
That’s because according to the Stock Trader’s Almanac, the worst bear market on record touched bottom during the presidential election year of 1932. That year, an unpopular Republican president was replaced by a Democrat, Franklin D. Roosevelt. And the next year was one of the Dow’s strongest, with the index surging nearly 67 percent.
And while that may sound like we are grasping for straws, the truth is that we have been basically forming a base for the last three months. A wild one no doubt….but a base nonetheless. That leads us to believe that a short term breakout to the upside here is completely with in range.
The key though it seems will be how the market behaves as we begin 2009. Because historically, stock performance in the first five days of the new year, and January overall, has been a good predictor of how the full year will go.
In fact, since 1950, an up January has led to annual gains more than 90% of the time, while a every down January has preceded a new or extended bear market.
From a technical perspective, the key levels to watch on the Dow are as follows:
On the Downside
- A close below 8400
- A close below 8150
On the Upside
- A close above the 50 day moving average (8608)…which happened on Wednesday.
- A close above resistance at 9000…now in sight.
- A close above the Nov. high of 9625
- A move back to the likely top of the range, the 200 day moving average. (near 10,900)
Will we ever get there?….. We shall see.
But so far the year is off to a pretty good start by comparison.
So Adieu, Adieu, Adieu, Adieu, to you 2008.
I can’t say that I’ll miss you.
