Up Against The Wall

Journey with us, if you will, to the dark side, in search of the extreme opinion about a stock market that has delivered some extreme action.

Follow us to the nether realm of P.Q Wall, a man whose daily challenge is concocting new descriptions of how bad it will get ... "when the floor boards rupture in the cable car."

He doesn't look like the prince of darkness - more like a lovable teddy bear of a man with a passion for philosophy, history, and irony.

But P.Q.'s point of view is about as grizzly as they come. He is a technician. He studies charts and trends to plot a market road map.

To Wall Street, analysts like P.Q. are little more than modern-day alchemists. They believe patterns tell the market's future.

But in the early 1980s, he told me that the Dow had started a bull run that would last several years and blaze several thousand points higher. (I didn't believe him.) Back then, the Dow was around 800.

He also said that this bull market would end in a 1929-style crash.

He can also miss the mark. Last spring, he said the Dow would crash in July. Instead, it hit a new high. On the plus side, he predicted months ago that the Dow would top at 9270, then crash.

Conceptually, P.Q. believes that because the stock market crashed once before, it will crash again - extreme but perhaps instructive.

He says the pattern for a 1929-style crash is already in place. Back in October 1929, the Dow first dropped 17 percent from its record high, then rallied briefly to being down only 7 percent.

Fast forward to this summer, when the Dow fell 21 percent from its July record, then rallied near 8200 - off 13 percent.

P.Q. calls this blip a mid-crash rally. The 1929 mid-crash rally was followed by a 45 percent drop from that record high, then a huge rally, and P.Q. thinks we're locked into that same pattern.

As we said, an extreme point of view, but here we are, down about 20 percent.

And even the middle ground doesn't seem to hold much optimism.

The moral to all this, as this column noted several weeks ago, is that the market appears on a downward trend.

So be careful about buying on the dips. The next dip may be even lower.