How Do We Nail the Bottom?

Quote from netedge:

Can you summarize the Trader Vic analysis as to how he confirms the bottoming formation?
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Not really. Too much information to just summarize. But if anyone gets a chance to read chapter 4 "Finding Order in Market Chaos" you would completely understand how the market went from where it was just over a year ago to where it is today. And you would feel comfortably at ease with where it is going. In other words, as hard as it might be for some to take, it is actually a normal process, and no intervention by Nancy Pelosi will stop the primary trend in the market.
There are three phases in any bull or bear market and this bear market is in phase 3; distress selling of sound securities regardless of their value by those who must find cash markets for at least a portion of their assets.

Here is some interesting reading http://www.cyclesman.com/rhea_1932.htm
 
Firstly, forget about nailing the bottom, or top. It is impossible and not worth the time, effort, and frustration.

Next, you should not depend on nailing the bottom or top in order to generate profits. Extract a part of the total trend up or done and you would be profitable.

So, how could we identify the top or bottom, bearing in mind we cannot pinpoint the exact top or bottom?

Price: An 18% down week followed by a 5% up week is rare; the bottom may have been made! Was the decline to 860 last week a retest of the low? Most likely. Looking back at previous bottoms (in a post in ET somewhere), it would appear that the markets may have bottomed. However, it will not be a meltup from here but a back and fill process. Patience is required, Dramamine also, and be alert to the fact that this may not have THE bottom.

Sentiment: to me, this is crucial. VIX has spiked up to record levels and then retreated, by not by much. VIX closing below 50 would indicate a reversal in progress. Some prefer looking at a 5-day RSI of VIX, for oversold VIX below RSI=20, and then a bounce. Big negative ticks, big range bars, extreme A/D and Put Call ratio, high volume declines are also other useful indicators.
Most important, traders should become very frustrated, almost suicidal (but we don't want them to jump off the Brooklyn or Verazzano), majority of participants become totally disgusted with the markets, some stopped trading, front page newspapers and magazine covers abound with stories and pictures of doom and gloom in the markets, everyone thoughout the world blaming America, and politicians blaming everyone but themselves and holding inquiries etc.

While all this is taking place you look for opportunities, raise cash, keep cool, then buy - maybe 25%. Wait a while for back and fill, retest, and then buy again - another 25%. If market makes new low, don't panic, wait for extreme oversold and buy - another 25%. Hold. Let the markets settle and reverse and rally 15 to 25 %, then take profits.
 
jahajee,good post,on a chart ,if u use the high'in 1929 and 1987,there is spx support at 800,also 1932 and 1974,1982 lows there is support at 515,if we don't hold 800,then we may work our way down to 515,the markets huge zig-zaging is usually an indicator of a major trend change
 
I see no reason to worry about potential bottoms. As long as the market is turning previous support into resistance, just keep shorting the rallies. When the market starts turning resistance into support, buy retracements and if we get into a ranged trading scenario fade the extremes using positive risk reward expectancy.

It's when we try to predict instead of react that our trading suffers.
 
Quote from netedge:

Here's some additiional info on the worst weeks and months in the S&P500 dating back to 1960. This should provide some additional good insight as to what is typical in a severe correction.

Worst 20 Weekly...
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what were historical returns (e.g. 2 weeks, 1 month, 2 months) after the worst weeks and months on your list?

this could give you some ideas about the likelyhood and the extent of the possible bounce.
 
Quote from ammo:

jahajee,good post,on a chart ,if u use the high'in 1929 and 1987,there is spx support at 800,also 1932 and 1974,1982 lows there is support at 515,if we don't hold 800,then we may work our way down to 515,the markets huge zig-zaging is usually an indicator of a major trend change
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Jack Ablin, chief investment officer at Harris Private Bank, said the biggest signs that a bottom has formed will be how investors react to bad news this coming week. He believes investors have engaged in ''slash and burn selling'' with all the news converging at once, and a change in that pattern will be telling.

''I think the bad economic data and earnings are already priced in to an extent,'' he said. ''What I'm looking for is a disconnect with investors where bad economic news or a bad earnings report is greeted by a rally, that will be telling about which direction we're heading.''
 
i have no clue what 's going on, i use TA to give me a referece point,if it's that obvious,then we will get a bounce,if we hit it and don't get a major rally ,then it's just another TA #,whenever it reaches a target ,u have to look at the response,that reaction tells u how important the # is or isnt,this reaction gives u a clue of where to look next, reading the tape with an adaptive reaction,don't let yor ego give u a bias,that is what the whole magic show is based on,a predictable response,we are all subject to an ego
 
averages without standard deviation is useless, and it's still useless with standard deviation when you have fat tails, which is the case. this may not be a typical bear market
 
Quote from blackbook:

the best way to a 'nail a bottom' is typically after its already been created.
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That about sums it up in a nutshell, everything else is expensive BS.
Solyaris, you point out the risk quite accurately!
 
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