There’s Still Growl in the Bear Market

Are investors once again being stalked by the bear market?

After falling late last month to lows not seen since 1998, the Dow Jones industrial average was staging a dramatic rebound until a spate of disappointing economic news put the brakes on the rally this week.

Triple-digit losses in the Dow on Thursday and Friday erased a chunk of the gains notched during the previous week of trading--and quickly raised concerns among some investors that the 2 1/2-year bear market may still have some life in it.

“We get a temporary thrill, and then we’re back to where we were,” said Youlonda Copeland-Morgan, an investor and educator from Chino Hills.

Les Greenberg, chairman of the Los Angeles-based Committee of Concerned Shareholders, said he thought the market’s recent bounce was nothing but a “head fake.” He saw Friday’s 2.3% drop in the Dow as proof that the market malaise continues.

“I am not really positive on the market right now,” he said. “I think we are going into a long-term situation like they did in Japan. After something like this happens, people don’t just jump back in.”

Indeed, a widely watched measure of the stock market’s fear level--known as the VIX index--has spiked in recent days, although it remains below the levels it reached in late July, when the index approached heights not seen since the 1987 market crash.

On the bright side, trading volume during the late-week sell-off was well below the record levels reached during the late-July meltdown and subsequent rebound--an indication that investors aren’t stampeding out of the market.

Copeland-Morgan, for one, has not abandoned stocks, believing the market will rise again.

“Most of us have lost so much in our investments that losing a little more doesn’t feel as tragic,” she said. “We are willing to take the risk in the hope that we’ll gain.”

Donald Straszheim, president of Straszheim Global Advisors in Santa Monica, believes the market hit its nadir last week and now is in the process of bumping around the bottom--as recovering markets do before they take off.

“Bottoming is a process, not a date,” he said. “Everybody is demoralized, but that’s what happens at bottoms. But it is these periods of despair that provide the best buying opportunities. Good companies get sold just like the bad ones.”

Others said there was considerably less despair Friday than there would have been had the week not started on such a positive note--a 447-point leap by the Dow on Monday.

“That one up movement gave people enough encouragement to tolerate the market’s fluctuations,” said Judy Martindale, a fee-only financial planner in San Luis Obispo. “It came at a really good time, because more and more of my clients who do not usually respond to panic were starting to panic. They can stand the downs as long as there is an up in there every once in a while.”

Many investors and advisors--whether they were positive or negative over the long haul--said they still expected some tough sledding in the months to come.

“I think the market will ultimately move up, but it went up too fast too soon,” said Barbara Steinmetz of Steinmetz Financial Planning in Burlingame, Calif. “We are going to see a lot of ups and a lot of downs until we finally even out somewhere along the line.”

Said Straszheim: “Investor behavior gets very emotional at these extreme points. People will rush out and say they never want to own a stock again. Then they’ll turn around. That’s why you see so much volatility around a market bottom.”

The sharp ups and downs can make market timing a nightmare as investors fret that sitting on the sidelines can cause them to miss out on a fast-developing rally.

Frank Glaser, an investor from Rancho Palos Verdes, pulled all but a token amount of money out of stocks and believes the market could fall 20% more before it rises again.

“Am I sure I should be out of the market?” he asked. “No. I sit here nervously.”