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A Matter of Life and Death

By Jeff Clark
Friday, August 17, 2007

Multiple-day declines breathe life into the stock market.
I first read about this thesis back in 1987, shortly after the stock market crashed. It was an obscure article in an obscure journal that I'm certain only me and the author's mother took the time to read.
The article was about "life-runs" and "death-runs" – multiple-day declines and advances that lead to the beginning or the end of bull markets. I've searched and searched for it. I've Googled the terms "life-run" and "death-run" and yet, I still can't find the original article...
But, I remember it well because the idea made a lot of sense to me at the time.
The premise is that five consecutive rally days that push the market up more than 5% (cumulative) is a "death-run" that signals the end of a bull market. Conversely, five consecutive declines that pummel the market more than 5% signal the end of a bear market or a correction phase.
Back in July, as the Dow approached the 14,000 mark, I was on the lookout for a death-run. But, it didn't happen. The day the Dow closed over 14,000 was only the fourth consecutive up day, and the cumulative gains were just about 4%.
So, even though I was cautious and I advised against getting too caught up in the bullish fervor, I didn't think we were on the verge of a bear market.
And I still don't think that. In fact, I'm thinking quite the opposite.
At Wednesday's close, the S&P 500 had declined for five consecutive days and the cumulative loss was more than 6.1%. This qualified as a life-run, and it should mark the end – or the near end – of a decline.
So, when the futures market sold off strongly Wednesday night, I made sure S&A Short Report subscribers knew what I was thinking before the market opened on Thursday.
Two weeks ago, as this correction was just getting underway, I targeted 1,375 as a potential support zone for the S&P 500. I told subscribers that if and when we got there, we should "start buying like a teenage diva with daddy's credit card."
The market hit that level yesterday and actually dropped a few points below it. But by the close, the S&P 500 was at 1,411 – a full 36 points above our downside target. Anyone with the intestinal fortitude to step up to the plate and take a few swings was looking pretty good at the end of the day.
There is tremendous upside potential in this market. Overly aggressive short sellers are looking at yesterday's reversal and questioning whether or not they're still on the right side.
Also, bargain hunters, who've shied away from the stock market lately, might find some encouragement in yesterday's reversal.
I don't know if we're completely out of the woods here or not. But, yesterday had all the look and feel of a "washout" decline that exhausted all of the sellers. The potential for a rally of several hundred points from here is huge... and I wouldn't want to be on the other side.
It may indeed be a matter of life and death.
Best regards and good trading,
Jeff Clark

Recent Articles
Market Notes
S&P 500 trades at 10% correction point for a moment, closes up yesterday... down 9.2% from this year's high.
Shorts continue to pay off: UltraShort Real Estate, UltraShort Consumer, and UltraShort Financials all at 52-week highs.
Nation's second largest mortgage lender Countrywide Financial at another new low... down 39% this week.
Blue chips litter the new lows list: Pfizer, Home Depot, Newmont Mining, Novartis, and Legg Mason.
Market Watch
Symbol Price
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%