NEW YORK (MarketWatch) -- Stocks' six-day slide spooks investors, but one money-making letter (there are a few!) is surprisingly calm.
There are, to be precise, 12 letters of the 180-plus monitored by the Hulbert Financial Digest that finished in the black after the Crash of 2008. Three of them were written by Dennis Slothower.
See Dec. 4 column
Slothower has further commended himself to me by writing a daily commentary after the market closes, a grueling and thankless task that makes life so much nicer for journalists with evening deadlines. Some time ago, he spun this commentary out into a separate service: Stealth Stocks Daily Alert.
Over the past 12 months through Dec. 31, Stealth Stocks Daily Alert is 5.3% up by Hulbert Financial Digest count. Remember -- well, it's hard to forget -- that's as opposed to a 37.2% loss for the dividend-reinvested Dow Jones Wilshire 5000.
Over the past three years, Stealth Stocks Daily Alert has achieved an annualized gain of 5.14%, vs. negative 8.4% annualized for the total return DJ-Wilshire 5000.
Writing Wednesday night, Slothower offered this terse summary of the economic data that spooked the market during the day: "Unfortunately, there is just nothing in the reports that show this economy's deceleration is about to end in the second half of the year but rather argue that things are getting worse."
But Slothower is primarily a technician -- that is to say, he predicts market moves based on price patterns rather than economic fundamentals. And from this perspective, the indexes' 2-3%-plus point loss doesn't panic him. He writes in techspeak: "From a technical perspective, the market is now clearly oversold on a short-term basis. The S&P 500 daily stochastics are at %K 13 and %D 34. With today's decline, prices are now resting at the bottom of the daily Bollinger Band lines.
" ... This could be the bottom of a trading channel, too. Given the oversold short term condition there is a good argument for a rebound in the near term."
Longer term, not surprisingly given his outlook on the economy, Slothower is more cautious. He writes: "[T]he risk here is in the intermediate-term charts which look very toppy, showing the intermediate cycle is rolling over. Market breadth remains negative."
He concludes: "I think the test before us is to see if the market can hold above the lows of December. If it fails to hold these lows it argues for a retest of the November lows or perhaps even lower."
Writing in the current issue of his monthly letter, Stealth Stocks, (up 1.4% in 2008), Slothower explained his overall market perspective: "The $64,000 question that I'm wrestling with is: Has the stock market fully discounted a bad recession? My short answer is: yes, it has. If the recession is as bad as many predict it will be, I see the stock market staying in a trading range for several more months. While in the trading range, the stock market will repair much technical damage. That would set the table for a bull market rally in 4Q09."
Both Slothower's projected support levels and his belief that the markets have discounted current catastrophe are remarkably similar to the views of another heroic daily commenter, Dow Theory letters' veteran Richard Russell.
See Jan. 12 column
Russell wrote Wednesday night: "It seems increasingly evident that the averages intend to test their Nov. 20 lows. A critical juncture lies in front of us ... In the 50 years that I have been writing these reports, I can't remember a more important challenge for the market that what lies ahead."
