Panic Selling, Not Hopeful Buying, Makes a Bottom - TheStreet

Editor's Note: Bill Fleckenstein's column runs exclusively on; this is a special free look at his column. For a free trial subscription to, click here. This article was published May 20 on RealMoney.

Across-the-Big-Board Slide

: Overnight, our futures sagged a skosh, and prices were therefore slightly lower at casino time this morning, before they basically went straight down for real. An ensuing brief attempt to stabilize turned into a pretty decent slide when the economy missed the number (the leading indicator being down four-tenths instead of the expected two-tenths). A couple of hours into the day, the


was down 2%, and the


and the


were down a little better than 1%. Interestingly, the SOX and the bank stock index were both down about the same percentage and change. In any case, with the exception of the housing stocks, which were all slightly green, it was a fairly even, across-the-board decline. I would only add that after last month's option expiration, the same thing happened, and it turned into a pretty nasty slide that lasted for several weeks.

Port-in-Storm Houseboats

: Over the course of the day, we basically just flopped and chopped in a rather wide range. The market made a couple of attempts at rallies, which failed, but likewise, each time the market tested the early-morning low, it managed to bounce. The net of it all was that the market closed near its low for the day, though not on the dead low, with selling evenly distributed across a wide front.

That said, it was interesting to see the bank stock index down percentagewise a little more than the SOX. The other thing worth mentioning is that even though the housing stocks did go red, they were down ever so slightly, making them somewhat of a port in the storm. Otherwise, there wasn't anything really unusual to comment on.

10-Yearling Crowned Livestock Queen

: Once again, away from stocks was where the action was, with gold up $5.10 to $316.00, and silver up $0.115 to $4.78. Looking at precious metal stocks, everything was up at least 3%, and quite a number of the smaller issues were up 10% on the day, as was the gold stock index itself. Away from the metals, the dollar was down against the yen and the euro. On the back of weaker stock prices, fixed income was doing slightly better, with the 10-year up three-eighths of a buck.







S&P 500



Nasdaq Composite



Nasdaq 100



Russell 2000



Semiconductor Index (SOX)



Bank Index



Amex Gold Bugs Index



Dow Transports



Dow Utilities



NYSE advance-decline



Nikkei 225



10-Year Treasury Bond



Pony Up Less in the Mild, Mild West

: Turning to today's news, in

The Wall Street Journal

was an informative article titled "Foreigners' Ardor for U.S. Stocks is Waning." I was aware of their interest in our casino, but the size of their commitment came as somewhat of a surprise. The story notes: "Foreign investors whose purchases in 2000 almost equaled those of U.S. equity mutual funds and who were steady buyers even last year have pulled their horns in."

Well, if foreigners were buying mutual funds as aggressively as their domestic counterparts, that's a pretty staggering number, and it just ups the hot-money quotient. Of course, the former are going to be more sensitive to the dollar, which makes the dollar even more important, and also helps explain why it stayed so strong for so long. Not that the euro is so great of a currency, mind you. It's just pretty cheap relative to the dollar.

Panic-Free Attack

: The other noteworthy article I'd like to point out comes from


, a publication that I don't often refer to much anymore, because it has become so watered down, except for Alan Abelson's column. The story, on page MW15, is actually a lengthy advertisement by the Market Technicians Association called "MTA Charles H. Dow Award: Identifying Bear Market Bottoms and New Bull Markets."

In this somewhat technical story, the writer, Paul Desmond, does a good job of chronicling the history of what one tends to see at market bottoms, and the information he has tracked does not indicate that Sept. 11 was the end to this bear market. He points out: "But, as strange as it may seem, the selling during that decline

referring to post-Sept. 11 never reached the panic proportions found near almost all major bear market bottoms in the past 69 years."

Bulls' Game Plan: Let Goose Boil Until Cooked

: I agree. Many people have operated as though Sept. 11 was the low for the bear market, but as regular readers know, I never believed this to be true. I think when those lows are violated, there will be a veritable avalanche as people attempt to get out. When that will occur is not knowable, but I feel certain it will happen. Readers should be aware of this and have a game plan for what to do should stocks begin to slide again in the second half, as I expect they will. That will protect them from the ugly surprise that awaits the unprepared.

William Fleckenstein is the president of Fleckenstein Capital, which manages a hedge fund based in Seattle. Outside contributing columnists for and RealMoney, including Mr. Fleckenstein, may, from time to time, write about securities in which they have a position. In such cases, appropriate disclosure is made. At time of publication, Fleckenstein Capital had no position in stocks mentioned, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy, sell or hold any security. The views and opinions expressed in Mr. Fleckenstein's columns are his own and not necessarily those of While Mr. Fleckenstein cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to