The aggressive 50bps Fed rate cut and the finishing negative numbers points to the deep fragility of the stock market. As the rate now sits at 3%, this leaves very little room for the Fed to cut any further. This is particularly concerning as the new bear market has potentially 18-30 months of additional downward pressure on the stock market and the economy.

It is important for investors to remember that equity markets are not falling due to excessive over valuations as in 1987 and 2000. This issue would be easier to manage as stock prices often quickly fall down to fair value.

This bear market is rooted in the consumer. Years of overindulgence with credit card debt, 100%+ mortgages, low personal savings coupled with record high energy prices have squeezed the consumer into a very difficult position. This type of economic problem is hard to turn around verses over valuated stocks as in other bear markets.

Bottom line: This bear market has all of the ear marks of a prolong and deep decline similar to 2000-2002. The DJIA fell 49% over 31 months.

Investment approach: In the February newsletter, there is a list of recommended bear ETFs that can provide upside potential over during this anticipated market decline.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2008 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present. He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms. He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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