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Daily Commentary
The 1990/1991 Rhyme Re-visted
David Goldring
Thursday, June 12, 2008

The major indices sold off sharply yesterday as commodity prices continued to surge and renewed fears in the financial sector weighed on market sentiment. We have been making the case recently that the present market looks amazingly like that of 1990/1991, so we thought we would illustrate some of the uncanny parallels. In 1990, the S&P 500 fell 20.35% from the high in the summer of 1990 into the October low. In 2007/2008 the S&P 500 fell 20.25% from the October 2007 high to the March 2008 low. In 1990, the S&P 500 rebounded 13.40% from the October low into the December high. In 2008 the S&P 500 rebounded 14.57% from the March low to the May high (if we take closing low to closing high, the 1990 rebound was 12.28%, while the 2008 rebound was 12.04%). In January 1991, the S&P 500 fell 7.37% from its December 1990 high, and in 2008 the S&P 500 has so far fallen 7.27% into yesterday’s low from our May high. In August 1990 we entered a recession that lasted until May 1991 while the financial system was reeling from the savings and loan debacle. Today we have entered a period of slow growth and the financial system is reeling from the credit crisis. What next? In 1991, the S&P 500 soared 25.35% over a three month period into an April 17th high. For the rhyme to continue, it would suggest that the S&P 500 (1335.49) would reach 1675 in mid-September? We continue to believe that the elastic band is being pulled back and that this correction represents a second chance to buy the rally that started March 17th. The 200 week average on the S&P 500 is 1317 and only if it is violated on a closing basis and we don’t see the second rally phase materialize soon, would we re-consider our 1990/1991 rhyme. For now, however, we are adding long side exposure with conviction.

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