Primary Bear Market Reconfirmation

October 3rd deja vu.

On Thursday, the Dow Industrials and Transports both reconfirmed the primary bear market. The fact that they, both breaking to new lows, did it on the same day is forebodingly ominous.

What does it mean? Obviously no one can say for sure what the future holds, but looking back, one thing is clear: this bear market did not start in October of 2007, it started in January of 2000. The October 2007 high was not the end of a bull market that began in 2002, it was a double top.

If I had to guess, I'd say that this bear market is going to be more vicious than any in history. Year to date, 2008 has already delivered the second worst decline ever. But I'm afraid that it's going to get more nasty than most people are expecting. We may not see the bottom for several years, and when we do 3,000 on the Dow wouldn't surprise me. Short term, I think that 5,200 is almost certain. I'm planning accordingly and will readjust if and when the Dow breaks 5,xxx.

Will there be some meteoric, rip-your-face-off bear market rallies? Most definitely.

In August of 1999 the gold to Dow ratio was 44, in other words it took 44 ounces of gold to buy the Dow index. In January of 2000 it had dropped to 41. In October of 2007, the gold/Dow ratio was 19. In October of this year the average ratio was 12. Currently, 10 ounces of gold buys the Dow. If and when the ratio drops to 5...