The bears are not headed into hibernation yet, three years after Nasdaq peaked above 5,000 in a dot-com pipedream that turned into a nightmare.
The giddy days of early 2000 are just a memory for investors whose stock portfolios have lost $8 trillion in wealth to the three-year-old bear market.
"We are in a market similar to the mid-1970s to mid-1980s, really a sideways market," Philip Roth, chief technical strategist at Miller Tabak & Co, said. "This is a trading range year."
Roth's view is in between the two Wall Street extremes on what to expect looking ahead.
The Nasdaq Composite index fell a numbing 78 percent from its peak of 5,132 on March 10, 2000, to a six-year low of 1,108 on October 10, 2002.
At below 1,300 on Monday, the Nasdaq Composite Index -- the home of the biggest technology firms, including such Internet bubble survivors as Yahoo Inc. -- is much closer to the bottom than the top, if the October trough holds.
In contrast, the broad Standard & Poor's 500 lost 51 percent to its five-year low of 768 on Oct. 10, 2002, from its March 24, 2000, peak at 1,553.
The blue-chip Dow Jones industrial average slid 39 percent to 7,197 on Oct. 10, 2002, from its peak at 11,750 on Jan. 14, 2000.
Bears get some respect
Of course, bulls are still a dime a dozen on Wall Street, especially on the 'sell' side.
After all, the average strategist tells clients to allocate most of their funds to stocks. But judging from their track record since 2000, the bulls have bet wrong on the second-half' recovery story as each of the eight or nine rallies so far have faded.
A group of die-hard bears is on the other side of the investment spectrum: They shun most stocks as pricey and argue that the excesses of the 1990s are yet to unwind despite the destruction of $8 trillion in investor wealth so far.
"We have seen the highs for 2003 ... and this bear won't end till Dow 3,000-4,000," said Rick Berry, an independent stock analyst, who sees a Japan-like decline.
Although they were the Street's laughing stock as the market surged in the 1990s, the bears have been correct in divining the market's direction in the past three years.
Now many look for a fourth straight down year, something that hasn't happened since the stock market's crash of 1929 became the market's bust through 1932, early in the decade known as the Depression.
The bears say a sustained stock rally can happen in two ways: Buyers come in droves when stocks fall sharply or corporate profits rise to bring the S&P 500's price-to-earnings ratio back to the historical norm.
The price-to-earnings ratio can fall below 7 at bear market bottoms, while according to Thomson First Call, the P/E ratio is currently twice that -- at 15.3, based on forward earnings.
Forget the highs
Many
Top technical analyst Ralph Acampora of Prudential Securities argues that stocks remain captive to the United States-Iraq saga and the economy's inability to stage a big recovery.
"We see internal market pressures mounting for further weakness, which in turn, is expected to prompt a test of support at the October 2002 lows," Acampora noted.
However, a resolution on the Iraq front, he argued in his Friday outlook, 'could reverse the need to make new lows.'
Subodh Kumar, chief strategist at CIBC World Markets, pointed to a couple of pluses for the stock market: Cost-cutting by companies has stabilized operating margins and the Federal Reserve is keeping interest rates low, which cuts the cost of borrowing by companies and individuals.
The quality of corporate earnings also is improving because of more conservative accounting methods after last year's accounting scandals, Kumar adds.
"The bear market could be ending," Kumar said. "But for that to happen, investors need to see earnings recovery driven by revenue growth rather than by cost cutting, and need also a reduction of geopolitical fears."
A normal environment, he said, could hoist Nasdaq to around 2,500 in the next 12 months to 18 months -- up 93 percent from Monday's levels. He expects the Dow to rise as high as 10,500, and the S&P to 1,250 within the next 12 to 18 months.
"But getting back to the previous high is a different story," Kumar said. "It will not be seen anytime soon."
No meltdown
James Stack, who writes the InvesTech Research Market Analysis newsletter, is watching Nasdaq and indexes such as the Russell 2000 which tracks small caps, and Wilshire 5000, which groups nearly all US publicly traded firms.
"If any of these break under the October lows, the bear could be coming out of hibernation," he noted. "If, instead, we see any one of them surpass their November-January peaks ... then our confidence will rise that the bear market bottom is indeed in place."
Stack and Roth, who say stocks could be in a difficult environment for years, dismiss as too simplistic the scenarios of economic or financial meltdown.
They see a 'muddle-through' type of scenario for the US economy over the next couple of years.
"At times, it will feel like a recession, and at other times, the recovery will appear to be picking up steam," Stack said.
Nasdaq and the S&P 500 have broken below long-term indicators that flag a bull market, some argue. This means any rally would have to be massive before a new bull can take hold.
"We would want to see the S&P move above the 936 area before taking a more positive stance," notes veteran technical analyst Martin Pring in his newsletter InterMarket Review.
