S&P Double Dip? (ZT)

George25

Talking Numbers: S&P Double Dip?http://video.cnbc.com/gallery/?video=3000054010#eyJ2aWQiOiIzMDAwMDU0MDEwIiwiZW5jVmlkIjoiM3NRa3ByTVl4dXJiS3pmeStlTmJ1QT09IiwidlRhYiI6InRyYW5zY3JpcHQiLCJ2UGFnZSI6IiIsImdOYXYiOlsiwqBMYXRlc3QgVmlkZW8iXSwiZ1NlY3QiOiJBTEwiLCJnUGFnZSI6IjEiLCJzeW0iOiIiLCJzZWFyY2giOiIifQ==

Fri 28 Oct 11 | 04:49 PM ET

it is time for talking numbers. my next guest advised clients to evacuate the stock market by may 1st, citing the risk of a repeat of the 2007 to 2009 financial upset. he stands by that advice even today, warning there's been nothing in the markets price action to suggest the downside risk has been erased. we're talking numbers with walt zimmerman. walt, good to see you. thank you. good to be back. i've got to push back right off the bat. we had the best october ever for the dow. look how much money you left on the table? well, actually 1076 was the make-or-break point. from $1,370 to $1,076 was a ten-point loss in value. it carried 108 trading days and it was a textbook five-way decline. what the initial legdown of an initial decline should look like. let's rewind -- you say there's still risk that the s&p 500 will do a double dip. yes. yes. because let's compare the decline from may 2nd to the decline from the all-time high october 11th, 2007. that initial leg down fell from 1576 to 1256. that was october 11th, '07, to march 17th, '08, 108 trading days, a 20% loss in value and almost the same exact pattern as the may to october decline. now, we're always looking for precedent, pattern repetition, and this pattern repetition of the initial leg down from 1576 to 1256 to this leg down, 1370 to 1074 is astonishing, and it's ominous at the same time because it's basically warning that this rally could very well be a bear market correction just as the rally from 1256 in march of 2008 was a bear market correction. and you were right obviously earlier in the year about this. so how much lower -- how low do you see the s&p potentially going this time around? what would you advise investors to do if, in fact, that's what it has been, a bear market rally? well, first of all, if this rally fails to break the may peak, then that in our book targets to 800. the double dip targets to 580. so there's significant downside risk. how do you get a handle on it? well, if this is a textbook perfect bear market correction, it should peak just overhead somewhere between 1305, 1325. so i think you start layering in put strategies up there, risking new highs. now, of course, the alternate approach is if you fail to make -- break the may peak and then you break the 1074 low then you break the 1074 low from october, then i think you can sell aggressively because that would confirm that, yes, we're on this bearish path. walt, what's the bottom line here? what should investors walk away from this conversation with? well, on any further upside, start getting hedged to downside risk, and if you're looking for a trade, this could be a great trade from the short side, selling overhead, risking a break of the may peak, looking for a double dip that would give you a fantastic return on equity. unfortunately, it's a trade to the short side. all right. we'll leave it there. walt, thank you so much for joining us. we'll be watching this and i know we'll talk more about it in the coming days and weeks. we'll see you soon. thank you.

George25

Ed02