Just Another Bounce, or Something More?

How is an investor supposed to make heads or tails of the October bounce when so many market 'seers' are saying it was just another Bear market rally? After all, we've had three rallies since 9/11 and none of them have lasted. The September '01 to March '02 rally rose +29.1% on the Dow Jones and +21.4% on the S&P 500. That's enough to qualify as a Bull market, although only a 'mini-bull market.' Then it re-entered the Bear market and went to new lows before rallying +17.5% on the Dow and +21.7% on the S&P 500 during this last July and August. Next came even lower lows, a double bottom actually, before rising +20.4% on the Dow and +18.9% for the S&P 500 during October and this November. Neither of the two most recent rallies qualified as Bull markets, although the jury is still out on this most recent one.

So where are we left? Those are pretty big bounces (some would call them rallies in a Bear market) not to count for something. Since the post 9-11 lows, the net change after all these ups and downs is +1.8% on the Dow Jones and -8.6% for the S&P 500. Net, net, nowhere.

But Jack Schannep thinks that is about to change. At the two lows this year, in what he describes as a 'double bottom,' the market was in total capitulation both times. That's only the third time in the last 50 years that such a double capitulation has occurred. The previous two were in 1974 and 1987, both major turning points. Then, as now, a Dow Theory Buy signal AND a Schannep Timing Indicator Buy signal followed the double capitulation, and were very profitable.

Schannep expects the same results this time. Both signals occurred on the same day and his subscribers were e-mailed with the news last week. If you are given to tiptoeing into the market, Schannep would suggest you take a position now and add to it as last week's highs of 8,771 on the Dow and 924 on the S&P 500 are surpassed. A move above those levels, incidentally, would constitute a +19% gain above the lows on both the Dow Jones and the S&P 500 index, meeting his definition of a Bull market.

When that has happened in the past, the market has gone on to at least a +29% gain some 97% of the time. A breaking above the first rally's highs in August of 9,054 on the Dow and 963 on the S&P 500 would be further confirmation that the move is more than 'just another bounce' and you would want to be fully invested by then, if not before.

So, let the market 'tell you what to do' rather than some 'seer,' and see if you don't like the results. This approach is similar to Will Rogers' 'Infallible Stock Market tip,' which states, "Don't gamble! Take all your savings and buy some good stock, and hold it 'til it goes up. Then sell it. If it don't go up, don't buy it."

Actually, the best way, in Schannep's opinion, to participate fully in any stock market move is with the shares of Diamonds (AMEX: DIA ), which track the Dow Jones, and Spiders (AMEX: SPY ), which track the S&P 500.

Make sure to know when and how to enter this erratic market through the extensive analysis of Jack Schannep by clicking the FREE TRIAL button below. Or, to learn more about the Schannep Timing Indicator and Dow Theory, click here .