Few people have navigated this bear market better than Jeff Saut at Raymond James. In this mornings missive he recommends tightening stops and selling partial positions. The verdict is still out on whether this is a bear market rally or the start of something bigger:

As for the question we have posed – is this a bear market rally or something more? – the verdict is still out. For us the answer to said question will be rendered by Dow Theory. To wit, if the DJIA (7776.18) and the D-J Transportation Average (DJTA/2777.90) can trade above their early January 2009 closing reaction “highs” of 9034.69 (I misstated this price in my March 16th letter as 9015.10) and 3717.26, respectively, it would be the first Dow Theory “buy signal” in a long while. Still, this rally does indeed “feel” different than the others we have experienced over the past few months. Firstly, this rally began from a generationally low oversold reading and came with a downside non-confirmation; meaning, that while the DJIA and S&P 500 (815.94) broke below their respective November 2008 “lows” (read: undercut low) the NASDAQ (1545.20) did not. Secondly, the number of stocks making new annual lows peaked on October 10, 2008 and even though the major averages have gone lower the number of new annual lows has been shrinking since October 10th. Lastly, the current rally has broken the S&P 500 out above the downtrend line that has contained previous rallies over the past three months.

Interestingly, for the last year (or so) we have, on occasion, compared the current stock market to that of the 1937 to 1938 affairs. Recall the DJIA went into a tailspin in August of 1937 that would lop-off 41% of its value. In that “democratic decline” there was NOWHERE to hide since stocks and commodities both “crashed” (if that sounds familiar it should). The downside drubbing ended in November at Dow 113.64 with the senior index then rallying some 20% into January of 1938. From there stocks stumbled into March and, in the process, made an “undercut low” at Dow 98.95; and, that was it! The DJIA would then rally nearly 60% into its November 1938 high of 158.41. As a sidebar, the “undercut low” that occurred in March 1938 (at 98.95) would not be breached until May of 1942, coincident with the commencement of The Battle of the Coral Sea.

We again revisit the 1937 – 1938 analogy this morning because our friends at “thechartstore.com,” in their brilliant blog, provide a fascinating chart comparison of the 1937 – 1938 affairs to the current stock market pattern. Not only are the chart patterns similar, but the indicator overlays they use are also strikingly similar, as can be seen in the attendant charts. Or as Mark Twain once stated, “History doesn’t repeat itself, but it does rhyme.” Twain also went on to note, “There is nothing new in the world except the history you do not know.”