The Great Rally of 2009 retraced exactly 61.8% of the decline in the Dow Industrials Index from its all-time High in October 2007.  We are not surprised.  That is a "magic number" that constantly appears and reappears in nature, and in everything we do.  We cannot escape it, because it follows us like our own shadow.  The ancient Greek architects knew all about it.  So did the designers of the Pyramids.  DaVinci knew it by heart, as did Newton.  Our own human bodies are designed around it and its derivatives.  The design of the tiniest snail shell to that of the hurricane and of the whirlpool and of the spiral galaxy is identical; the only difference is size.  When the Great Rally advanced to that retracement level, it died, a powerful Candlestick "Bearish Engulfing Pattern" emerged, and prices have been trending lower ever since.  They have a long way to go.  We think that when the trend which is now pushing the market down comes to an end, the Dow will be somewhere between 4500 and 4000.

Following yesterday's (April 29, 2010) strong selloff in the stock market (as evidenced by a tall black Candlestick), which in itself is evidence of this strong downtrend, economists (in the aggregate) and pundits continue to aver that the country is not yet in a depression, which some of them define as a falloff of 20% in prices, a "recession" being defined as a falloff of 10%.  On that basis, the claim is made that whereas we are in a recession, we are not so badly off as to be experiencing a depression.

There are at least two problems with that argument.  The first is that the definitions are arbitrary.  The second is that the propounders of the assertion are using an incorrect price base upon which to perform the measurement, in that they use the Rally high of April 2010 as the starting point, which is convenient but meaningless – and it results in a selloff number of "only" 12%, whereby we are said to be in a recession but not a depression.

The correct starting point as the basis of measurement is the all-time High of October 2007.  On that basis, present prices in the Dow reflect a falloff of 30.33%.  So, even using some economists' arbitrary 20% number as the definition of a depression, we are well into one right now.

Mr. Lincoln was right when he said "You can fool all of the people some of the time…"

The Dow's most recent mini-rally topped on June 21 and was marked by a bearish "High Wave Spinning Top" price bar.  Other Indexes displayed other kinds of bearish Candlestick patterns on that day, and have Closed below their Lows of June 8 – which definitively closed off the mini-rally.  The upshot is that the downtrend which began in April remains intact.  The Bear is back.