Bull Market Top
By Bryan Bottarelli
Bull Market Top: Dissecting the Day After
In this article
We're seeing some alarming similarities between the current market and the last major market down-turn back in 2000.
Buyouts have been fueling the market's recent upside run.
The bears are quick to point out that the markets have had a remarkable run-up without any 3% correction.
Already this week, the Dow has wiped out as much as $600 billion in market value.
And as we watch the volatility continue today, you can see some alarming similarities between the current market and the last major market downturn back in 2000.
Most notable is the $45 billion buyout of Texas utility TXU (TXU:NYSE). As you know, buyouts like this have been fueling the market's recent upside run, but, as the deals get bigger and bigger, one has to wonder about the timing of these mega-deals.
After all, the timing of the legendary AOL-Time Warner (TWX:NYSE) merger in January of 2000 marked the absolute top of the bull market -- which soon gave way to the last major U.S. bear market and recession.
Has the recent TXU deal offered us the same “market top” signal?
Bull Market Top: The Longest Period in History
Of course, the bulls will disagree. They'll point to corporate earnings that continue to impress, low interest rates, and a Fed chief who does whatever is necessary to calm and soothe the market (even while his predecessor is spouting off about recessionary fears).
On the flipside of that coin are the bears, who are quick to point out that the markets have had a remarkable run-up without any 3% correction. In fact, before Tuesday, this was the longest period in history to witness such a market calm streak. And if all it takes is one poor day in China to trigger a 400-point loss on the Dow, then look out below!
Toss in a weak housing market, a sub-prime lending crisis in the making, and economic indicators that signal a slowing economy, and the downside threat has just begun. At least that's the bears' viewpoint.
As Adam pointed out yesterday, past market corrections have extended longer (time-wise) and dropped further (value-wise) than what we witnessed this week, so the downside is probably still not over. As a result, we'll keep looking for put candidates to capitalize on the weakness.
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Related Resources
Time Warner: Historical chart showing performance after merger with AOL. - Yahoo!Finance
TXU Corp.: Latest news headlines for TXU Corporation. - Yahoo!Finance
S&P 500 February Winners & Losers: The month still produced a few S&P stocks with healthy gains. February's performance king: TXU. - Forbes