And so the market rally started and on August 3rd of last year the S&P 500 hit 1002.63.  In less then five months we got back to the magical level of 1,000 on the index.  My theory is that we should have never been lower than this level.  The S&P 500 Index stood at 1565.15 on October 9, 2007.  If we look at the percentage decline from this market high in October 2007 to the market lows of March 2009, the S&P 500 index dropped 56.78% in 17 months.  In my opinion, the facts did not support this kind of market drop in this time period.  Based on my analysis I concluded that the S&P 500 Index shouldn't have gone through the 1,000 level, never mind barreling right through it with no end in sight!

I concluded that the market rally that brought us back to the levels above the 1,000 mark on the index was just a correction of an overcorrection on the way down.  It was just the pendulum adjusting its swing and trying to find some sense of equilibrium.  Therefore, it is difficult to say whether we are in a secular bear market because I do not believe we have seen any real signs of market stabilization, other then government stimulus spending.  The real test will be when the stimulus effects wear off and we see how the economy is progressing on its own feet.  I believe we'll stay in a trading range between 1,000 and 1,200 on the S&P 500 until we receive very clear signals that the economy has indeed stabilized and that no other shoes are preparing to drop!

By the way, this analysis assumes that the Chinese economy doesn't implode because of their bad banking situation, that the Greek tragedy doesn't become a tsunami and that the price of oil doesn't skyrocket again!