The first quarter of 2001 put the Great Bear Market of
2000-200[?] into the history books. The Nasdaq lost a stunning 25.5 percent in the quarter, by far its worst quarter ever. The S&P 500's 12 percent quarterly loss was its worst since 1987. The DJIA fared best, losing "only" 8.4 percent, its worst first quarter in 23 years.

The Nasdaq’s Great Bear Market "celebrated" its first birthday on March 10. The 64 percent fall from grace in one year can perhaps be considered the worst bear market of any major market average, ever. Only the DJIA’s 80 percent crash from 1929 through 1932 is of the same order of magnitude. Note of course that the Great Depression’s Bear Market took four years to play out while the Nasdaq’s current Great Bear is just a year old.

The Great Bear Market of 2000-200[?] has been devastating and demoralizing for the bulls. Even their hero, Sir Alan of Greenspan, could not ride in to the rescue and stop the Great Bear. Sir Al and his pals cut interest rates three times in the quarter and the Great Bear gobbled up the rate cuts like honey from a hive.

Short-term, the bounce off of last Thursday's spike low evolved into a buying frenzy. Such rapid reversals from widespread bearishness to near-panic bullishness are typical of counter-trend bear market rallies. The Street is convinced that the bottom is in, there will be no recession, or only a brief, mild one, and that now is a once-in-a-lifetime bargain hunting opportunity. The foregoing are all signs of classic bear market rally mentality. The Great Bear will do its best to confound these irrational expectations.

After the DJIA's 16 percent short-term plunge from 10,858 on March 8th to March 22nd's spike low of 9,107, and really the entire year-long 64 percent crash in the Nasdaq, the Great Bear seems close to finally having its fill, at least for this meal. The March mini-crash did show some signs of the panic and capitulation that typically mark solid lows. Shorts were covered and margin calls were liquidated. Mutual fund redemptions picked up. A lot of towels were thrown in, but not enough to generate that elusive historic one-day crash. Indeed, the markets seem to have weathered the risk of that crash, at least for this leg of the Great Bear Market of 2000-200[?].

Yet not all investors suffered in the first quarter. The 19 “Great Bear” mutual funds we have identified out of an industry of 10,000 funds were the stars of the quarter. Thirteen of the top fourteen funds were “bear funds.” The Rydex Dynamic: Venture 100 Fund soared 56 percent to top the quarterly scoreboard. Please see our Great Bear Funds Page for more information.

In Elliott Wave terms, the decline is playing out right on target. As we said last month, 

"The Nasdaq is nearing completion of its third major leg down of the Great Bear. Wave 5 of this decline has more to go, probably to around 1,800, before a multi-week wave 4 rally ensues." 

The Nasdaq bottomed (so far) at 1,794 on March 22nd. The short-term wave patterns suggest there’s still a bit more to go on the downside to complete this small fifth wave of the decline, which should be followed by a large wave 4 counter-trend rally. Be prepared, as we know that bear market rallies are often sharp and swift. 

The markets are at an interesting and important short-term juncture to open the second quarter. The DJIA has bounced off 9,700 three times in the last two days. Any break thereof should now usher in the completion of this leg of the decline. At a minimum, another several hundred points would be at risk for both the DJIA and the Nasdaq. If there's a bit more spring in the current small bounce, both 10,000 - 10,100 on the DJIA and 2,000 - 2,100 on the Nasdaq should provide formidable resistance and will likely halt the rally.

Our Elliott Wave chart reprinted from last month stands intact.

For much more detailed information on Elliott Wave technical analysis, please see Putting Elliott Wave to Work in the Markets.

We firmly believe that whatever rebound the markets are able to muster at this point will just be a temporary pause in the decline. Bear market rallies serve their purpose, namely to relieve the massive oversold technical indicators and excessive pessimism that are generated by the selling.

Richard Arms, inventor of the indispensable TRIN (ARMS) index, reports from his site at www.armsinsider.com:

"The message seems clear. We are seeing oversold levels that are rare, and have always, in the past, pinpointed a time to be aggressively buying stocks. It is hard to go against the crowd when the bearishness is so widespread. Being contrary at important turning points has always been extremely difficult, but extremely profitable. We seem to be at, or near, such a point."

For the first time in nearly 2 1/2 years, we are lifting our FULL CRASH ALERT warning, as this leg of the decline nears completion. 

We'll keep you informed throughout the month with our daily updates as we zero in on the conclusion of this leg of the decline.

From within the heart of the Great Bear Market of 2000 – 200[?], now is not the time to abandon the mainstay of our diet, contrarianism.

By the time the mass media recognizes a financial trend, it is usually almost over. Add to this bearmarketcentral.com’s selection as U.S. News' "Best of the Web" Site of the Week, and you can’t help but think that the bulk of this leg of the Great Bear is just about over and a significant but temporary low is nearby. 

A Gallup survey as reported in Newsweek magazine revealed that 29 percent of respondents are more worried about their personal finances due to lower stock prices, while 69 percent aren’t more worried. Expect to see such sentiments reversed by the end of the Great Bear.

The March 18th Sunday Wall Street Journal ran a story featuring "Twenty Ways to Sidestep the Selling Frenzy." Among the pearls of wisdom:

#1: Now that stocks are cheaper, you should like them even more.

#7: Stop looking at the stock tables and mutual fund quotations. Why torture yourself?"

#9: Root for the bear market to continue, so you have more time to buy shares and reinvest dividends at today’s cheaper prices.

#17: Cut your spending so you have more money to invest at today’s depressed stock prices.

The WSJ wants you to believe that what worked so well in the old bull market, namely "buy the dips," is still the best strategy. We beg to differ, and believe that "sell the rallies" is now the name of the game.

The current leg of the Great Bear has been driven by falling earnings and massive corporate layoffs. Each time the Nasdaq appears ready to mount a rally, a new "earnings warning" disappoints The Street and adds fuel to the Great Bear’s appetite.

The Street’s new buzzword is "visibility," or more to the point, the lack thereof. Day after day, CEOs and "anal-ysts" appearing on CNBC report that their crystal balls are so foggy they just have no confidence in the short-term outlook for their companies. In a Great Bear Market, you can be sure than the vast majority of earnings surprises will be to the downside.

Many more earnings shockers are just around the corner as first quarter reports start to trickle in. We believe these reports will confirm that the economy has been in recession for months and the situation is much worse than the official US government statistics would lead you to believe.

For example, the monthly unemployment report is but a figment of a bureaucracy’s imagination. The calculations are riddled with all kinds of subjective adjustments (some politically motivated), outdated and outmoded models, seasonal adjustments, and all kinds of fudge factors.

Cold, hard, and indisputable corporate layoffs tell the true story, and they are accelerating. About 400,000 layoffs have been announced since December. These are real cuts from important leading companies: General Electric to cut 75,000 jobs, Montgomery Ward 28,000, Daimler-Chrysler 26,000, Motorola 20,000, and on and on.

Such companies do not take such actions without great forethought. Hell hath no fury like a laid-off worker. Clearly, the CEOs of GE, Daimler-Chrysler, Motorola, et al are seeing much more than a brief "V-shaped downturn" dead ahead.

The disappointing sales and earnings will ripple up and down the corporate supply chain, causing a spiraling effect that will take the economy down faster than most are expecting.

So-called new economy management practices such as "just in time" manufacturing, computerized inventory control and tightly integrated supply chain management all created tremendous efficiencies that helped prolong the record-long economic expansion of the 1990s. Such efficiencies will be thrust into reverse and accelerate the downturn. Orders will quickly be pulled from the pipeline in record numbers as the economy screeches to a halt.

In this day and age of instantaneous global communications, investors have become conditioned to expect instant gratification. Their time horizons have contracted to hours and days instead of weeks and months. They are expecting and demanding the V-shaped recovery, now. Not!

Conventional "wisdom," always to be taken with a large grain of salt, has it that lower interest rates lead to higher stock prices. The markets’ performance so far this year banishes such folly to the old wives’ tales bin. As we’ve been discussing for the past few months, lower interest rates certainly haven’t helped the Japanese market recover from its burst bubble in 1990.

For eleven years, they’re been "pushing on a string," yet the Nikkei 225 still stands some 65 percent below its peak. Current interest rates in Japan are essential zero, and as columnist George Will notes, even that’s not low enough to spark a revival.

Can President Bush’s ten-year $1.2 trillion tax cut plan save the day? Not when you consider that in all, about $5 trillion of U.S. wealth has been devoured by the Great Bear in just over one year. That’s about 40 percent of annual Gross Domestic Product, or about $50,000 per family.

American household net worth fell two percent in 2000, the first fall in the 55 years that the Feds have been computing such data. Investors will get more sticker shock when their quarterly 401k reports start showing up in their mailboxes in a few weeks.

The Economist magazine estimates that $10 trillion in market value has been lost worldwide. That’s about 30 percent of world GDP. "Can the world escape recession?" asks the Economist. What do you think?

The outbreaks of Mad Cow and foot-and-mouth diseases in Europe are right out of a cheap sci-fi thriller gone bad. This is a serious situation having a serious impact on the world economies, particularly of course in Europe. For openers, economic losses in Britain alone are estimated at $15 billion, and the situation is far from under control.

The last confirmed case of foot-and-mouth disease in the U.S. was in, uh oh, 1929.

"No bull market has ever started with the Dow Jones Industrial Average selling at 21 times earnings"  Dow Theorist Richard Russell.