Fund Blawg

Comstock Partners wrote a great article entitled "Three Stages of a Bear Market" . According to Comstock the three stages are denial, concern, and capitulation. From the decline that begin last fall through March of this year there was denial. Wall Street denied there were problems with subprime loans. Then Bear Stearns failed. The buy and hold and hope crowd said there was no problem and the market will come back. They said to buy for the long term, even though the S&P 500 has underperformed the ten-year note for the last 10 years. The market rally from March through late April even renewed their optimism.

However with the persistent selling in the market over the past few weeks, the failure of a high profile bank, and the solvency concerns surrounding Fannie Mae and Freddie Mac, I think we have entered the concerned phase. I am being asked by more friends and colleagues about the market and what they should do with their investments. The financial media officially declared we are in a bear market last week with the Dow Jones off 20%+ from its peak. The market now has investors attention.

I think the third phase is yet to come as the major indices are breaking major support levels. As I have pointed out in previous articles breaking of major support levels tends to trigger more institutional selling.