We are edging closer and closer to a bear market, arenʼt we? This current correction presents great buying opportunities.

Oh, really?

On an everyday basis, we are hearing people say that the bear has returned to haunt us after an absence of more than five years. We are also spooked by talks that what (share price) is low today can be even lower tomorrow. This is so true because we have not had a single good day at the stock market since the start of the New Year. Only one word can be used to describe current sentiment - horrible.

What else can we do but sit and wait for the bad news to subside? Sharks are known to smell a drop of blood in the sea from afar, so we all hope to “smell blood” in the market as early as possible. There is definitely blood being spilt but we, as investors, are often skeptical and fearful of buying shares when the market is down.

Are we in a recession already?

NOT A RECESSION YET

The concern at this moment is whether the US economy is in a recession. Everyone is obsessed with bad news so much so that it has become an addiction. Selling gains momentum at the faintest bit of bad news and sellers swarm the market whenever there are gains.

The market is definitely trying to revalue itself in the face of a possible recession in the US, but Asia is definitely not in a recession or anywhere near it. We can argue that a recession in the US will drag Asia along, but growth in this part of the region is no longer as dependent on the US economy anymore.

For a start, current interest rate in the US does not support the argument that it is in a recession. Let us look back the past 30 years where the US economy slipped into a recession. The interest rate environments in 1973-1975, 1980-1982, 1990-1991 and 2000-2001 were unfriendly compared to 2008.

Back in those years, the lowest that the Fed fund rate was at was slightly more than 6% while the highest was almost 20%! Incredible! At 4.25%, and possibly 3.75% at the end of this month (January), it is unlikely that the US will slip into a recession based on this Fed fund rate comparison model.

If we were to compare US unemployment data, a 5% unemployment data announced a few weeks ago is still low compared to the yearly average in the US recession years of 1980, 1990 and 2001. In 1980, unemployment reached 7.1% and peaked at 9.7% in 1982 while those who were without jobs in 1990 stood at 5.6% and topped out 7.5% two years later.

The most recent recession that the US faced in 2000 also saw unemployment reaching a high of 6% in 2003. It started off with 4% in 2000 when the tech bubble burst.

Despite arguments that suggest the US is not yet in a recession, we need to be very, very mindful of issues that can tilt the balance between a recession and continued growth.

For a start, US consumers are facing higher living costs arising from high oil costs, the tangible and intangible aspects of the housing slump, rising unemployment and income stagnation. US consumers drive two-thirds of the US economy and lesser money in the pockets will definitely hit spending big time.

When spending weakens, the economy will surely be dragged into a recession that may or may not arrive. Even if it does arrive, a recession may not be a prolonged phenomenon.

Historical trends suggest that recessions in the US typically last for two years and rate cuts have tended to drive markets higher when the economy recovers.

The US is not yet in a recession and we are already seeing Fed fund rates at 4.25% and, thus, it is unlikely that the US will go into a recession for two long years.

HOW MUCH LONGER BEFORE WE SEE A BOTTOM?

I have been asked this question countless times for the past few weeks.

So when will we see the bottom? To this, I have only three words for an answer: I donʼt know.

While we can look to the charts for a guide, it is not a foolproof method because what is low today can be lower tomorrow. We cannot measure fear, we cannot measure sentiment, and these two elements are the “twin engines” driving the stock market these days.

Everybody is fearful and afraid that the stock market will go much lower so much so that there is widespread selling on an everyday basis. Coupled with forced-selling and margin calls, it is hard to call for a bottom.

By the time this publication reaches the bookshelves, the US banks should have reported its results and the coast should be a lot clearer than it is now. Also, there should be more signals from the US Federal Reserve as to the future direction of interest rates.

Unfortunately, the Fed has made a bold statement by saying that it will take “substantive action” to arrest current problems, which will give rise to high expectations. Disappointments will then be not taken lightly.

We should heave a huge sigh of relief that oil prices have come down quite substantially since hitting US$100 per barrel, which should take some pressure off inflation and overall prices.

ON THE CHARTS

Earlier on, I mentioned on various television segments that the Straits Times Index (STI) should find support at 3,300 and then at 3,180. Both supports have given way and, despite the index and broad market being oversold, we should see further support at 3,100 followed by 2,930. If the latter should be broken, we must be very, very concerned because a break of 2,930 would have broken the long-term trendline that has been supporting the STI since 2003.

The Dow Jones Industrial Average (DJIA) should find support at 12,500 followed by 11,940. A breach of the latter will open up more downside, which will threaten the continuation of the Bull Run.

We should now look at how investors will react to the US rate cut. If the market does not react positively to the rate cut, we can expect more weakness in the market that will last till at least the end of February.

In March, we should be able to feel the effects of the Fed rate cuts. If the US economy does not start to recover, we should be worried. By then, the DJIA and STI should also not be below 11,940 and 2,930 respectively. Finally, the markets are oversold and there will be technical rebounds. Such rebounds must take the markets higher and, hopefully, be able to hold above key support levels discussed earlier.

For the brave-hearted, look to the badly-hit blue chips such as DBS and SGX. These are safer bets in a volatile market.