Anyhow the puke indicators should be starting soon enough. What is the puke indicator? When you want to puke when you look at your portfolio. Perhaps I should start a poll and when we get 50 "yes, I feel like puking" votes it's time to get bullish. ;)
Strap on the crash helmets, remember we want to simply survive these type of things and not end up like this fella ->. Below S&P 1260 takes out that March "Bear Stearns" morning low (1275 is the main low, but the panic selling took us 15 points lower). That's where we are now and SHOULD have at least a cursory bounce from there. So that provides the last morsel of support quite a while.
After that? March 2006 lows - S&P 1225. Nearly 2.5 years of gains wasted away. (1170 -> October 2005 is next)
9 comments:
Haha, panic time. My account is looking a bit rough today, but it's something that I've been expecting. I'm about 35% cash right now and just waiting for that fall over the cliff. We seem so close...
It is quite amazing how every technical level there is hopeful buying and a bounce.
This market must look terrifying for those who don't use TA because you just see selling after selling. At least when you use technicals you can see the "stair step" nature of this selling, selloff - then bounce at support - weak bounce - then continued selloff - bounce at next support - weak bounce - and continue.
This is actually action very similar to 2002. Just an erosion type of selling instead of swoosh. In this day and age when everything happens so quickly I just assume everything will have a swoosh at the end of it with the computers dominating trading.
Still waiting. Even today, we got that bounce at the 1260 and still hopeful buying in the coal, fertilizer etc.
Going to just drag out the eventual process.
I am adding to my gold position. Any thoughts?
hi mark,
Would you buy General or Index for short term bounce? The General does not seem to fall enough??
sliman, GLD chart looks excellent. Its always the Armageddon trade.
Oa,
I'd actually short some individual names but currently am focused more on SMN and FXP and REW
As you are seeing the problem with the general index short is when the market rotates and kills 1 sector but leaves another alone, the general index does not reflect the damage underneath.
So index shorts really work best on those days when the market is down 2.5-3% which used to be quite rare. Whereas if you pick the right sector of weakness (say SKF and SRS for much of the past year) you can do a lot better than a general index short.
Today is a great example - the indexes are not reflecting some serious carnage in individual names.
TM:
One of your posts the other day you raised a good, but subtle point. You said something like "is this sell off going to be like a garden variety sell off or is it going to be more like the January, 2008 variety which was deeper."
Investor sentiment is obviously bearish and by my measures it has just turned so this past week. If we wait a week (which is a good idea because sentiment tends to be early) and then buy the Index and hold until we get a sell signal you can look at how accurate the entry signal was. We measure something called maximum adverse excursion or MAE which essentially is how much a trade went against your initial position before being closed out for a winner or loser. I assume most people don't bottom pick their trades and usually have to angst a bit before the thing turns positive. MAE measures that angst.
Let's start with the SP500 first. Since 1990 there have been 41 signals, and the MAE for the January 2008 signal was about 10%; so sentiment turned bearish; you wait a week; buy the SPY and watch your position sink 10%. But it did recover.
The January 2008 signal was the second worst drawdown out of the 41 signals. Over 90% of the signals had draw downs or MAE's less than 5%. Pretty good. So this supports your contention that this current sell off should be contained and won't be another January 2008 or October, 1998. The 2 SD sell doesn't occur all too often.
However, let's look at the NASDAQ. In the NASDAQ, there have been 40 signals since 1990. January 2008 was the fifth worst MAE on record. It's MAE was about 11%. 85% of the MAE's were less than 10%; this is reasonable because the NAS is more volatile. When we look at the 5 other trades with MAE's greater than 10% we note that 4 occurred in the bear market of 2000 to 2002 and the other was in 1998. The implication is that oversolds in bear markets tend to be deeper and so we just may get a sell off that is like January 2008 because this is a bear market. In other words, in bear markets a 2 SD sell off is more likely.
Lastly, a big headwind for this market remains the trends in gold, crude oil, and Treasury yields. Bullish advances in these markets should cap gains in equities. We would need some relief in these areas in my opinion.
Guy - very interesting measurement there. Yes for those who did not live/survive/cry through 2000-2002 NASDAQ it is hard to compare anything to it, so while that was a bear market I would call it over and above that - I mean it was so unique in its horridness you almost have to put that data set to the side.
My working thesis is some sort of bounce, leading to another leg down - but durations and magnitude are unknowable. January 2008 I went in assuming a run of the mill sell off like August or November or the previous February. We got far worse and hence it blew up in my face. That happens from time to time - have to go with probability.
The jury is still out on this one but if you look at the degree of drop in the chart it is actually worse than March 2008 ... but the composition is different - in March 2008 they were shooting the generals. This time around they are not. In all 4 of the selloffs since last summer - they shot the generals. So that is the one fly in my ointment. Still no shooting of generals.
Granted, maybe this time there will be no shooting of generals - there is no rule they must be shot. It would just be quite the outlier - and again you have to go on probability.
Did you see the Pentagon now warning of potential for Israel attack on Iran. Combine that with hurricane season and it just makes everything so convoluted. We are literally a hostage to oil - serves us right as a country for now demanding leadership that has any basic energy policy but we are in a serious pickle now.
Anyhow I am trying to look through my own very negative view and realize there must be some long exposure - so I am picking through the rubble and trying to think what will bounce more, if we do bounce. Even with this "reversal" we have not made a new high versus yesterday so hard to really have any belief. It seems oil has its gun at our head and we just dance to its tune. No one knows what we'll wake up to tomorrow or each morning unfortunately.
Well we can take the data back to 1970's and 1980's if you wish; and from 1970 to 1980 sentiment measures like Investors Intelligence data worked very poorly; this kind of sentiment data didn't start to work until about 1982 or the the start of the bull market. So the 2000 to 2002 period isn't unique.
I would agree that you have to play for the bounce and it is unknowable what the downside (or upside)may be. However, I would like to see inflation pressures recede; this has tempered my long exposure. I can see bonds higher (yields lower) and crude should come off as spikes (i.e., range expansions in price over short periods of time) generally lead to periods of consolidations. Of course, this time is different until it isn't.
What do you see that could make inflation pressure recede? Short of oil dropping $40
The problem is we have not even seen much of the inflation pass through. Many companies are hedged so were not passing along costs - that has just begun in the past 3-4 months.
So as contracts continue to come off, they are going to have to buy foodstuffs, petrol, steel, everything at current prices. There is a big lag effect which is my main worry, its like the rat in the snake - much of the inflation has not really begun to even work through.
That said oil of course would help sentiment and psychology. Just tough with talk of potential airstrikes that literally could be brought up by the oil bulls any time they want (sort of like rumors that hedgies do on the financials) It is something you can drag up each time a trade needs to go in your direction. Oh what's that ? crude $136? Need I remind you of the coming Israeli air strikes and closure of Straight of Hormuz? etc etc.
I will say WHEN (big when) oil reverses I think its going to be a traumatic and vicious move. The only question is when.... a lot of corpses left on the side of the road by those have been guessing the past 6+ months.
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