Michael Kahn from Barrons has written recently about apathy as being an important marker for the end of a bear phase. He is clearly correct about apathy being an ingredient but I think it is deeper than that. I would add demoralization and disbelief.
After yesterdays pop, markets today are down a lot which is demoralizing for a lot of folks. GE is around $6, Citi is around a buck, Wells Fargo is way under $10 and there are more stories like that. The weariness and sense of defeat created by this type of action adds up to demoralization of market participants. Demoralization is not anger, although plenty of people are angry (even Ben Bernanke apparently), but more of a sad acceptance of markets that are down a lot and give no sign of optimism. That is not to say today is a bottom because I dont know but the feeling created is an ingredient.
Another ingredient is disbelief. There was a lot of disbelief in March 2003 when the market rally turned into the real thing; a new bull market. After many months of falling markets and then getting tricked by bear market rallies people stop getting tricked, they know that a rally should be sold. Well eventually, because of the disbelief a rally will stick.
It is impossible to know exactly how long market participants have felt demoralized thus far (maybe it hasnt even started) and I doubt disbelief is here yet but at 689 on the S&P 500 we are down 56% from the peak and 56% discounts in a lot of problems. A bottom is not really predictable, guessable but not predictable, but recognition that the vast majority of the decline is in and that from here most of the damage is likely to be psychological is easier to see.
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