How Do We Nail the Bottom?

netedge · Oct 31, 2008

This October close today is the worst month for the SPX since 1987! That's quite a feat considering the strong week we have just experienced.

The retest of October 10th has held thus far. The bad news is not scaring the markets to the extent it was in recent weeks. What is a concern is the VIX continuing to hover in the 60 range. Today was the first significant close above the 20 period Moving Average.

The next significant resistance levels in the SPX are 985 and 1044 respectively. The 50 day Moving Average is currently at around 1110.

50% retracement levels are at 1076 (using the 8/11 high of 1313) and 1206 (from the 10/11/07 high of 1576). I still look at the 1200 area as an intermediate (multi-week/multi-month) target once we move out of consolidation. If we can't make it to 1076 then I would expect a retest of the lows.

BadCo · Oct 31, 2008

Quote from stock_trad3r:

Big deal. Considering the markets were up 900 points yesterday a 70 point selloff in the last 2 minutes means noting. Thursday has been an 'up' day for the past four weeks. 14K on the dow within 15 months.

We have all the factors for a huge 15 month rally:

1. tons of negativity and shorts who haven't covered

2. No more bad news regarding credit spreads, bank defualts, mortgages, bank collapse. There are no more shoes to drop.

3. All econ and earnings data has been better than expected

4. Fed pumping tons of money into the system

What does a 900 up day accomplish?

1. Squeezes shorts = Too much company for insiders on the down side.

2. Encourages the investing public to "hang in there." = Insiders want the public to sell at even lower prices.

To paraphrase the Soup Nazi: No bottom for you. Come back one year.

mister_doodi · Oct 31, 2008

ST wants to believe that we will go straight up from here with out a basing. That chart is what he sees right now. In a cyclical up trend that might be possible but we are taking about a depression and a market collapse here, there will be no sustainable and substantial rallies produced without basing.

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I think we are close to a bottom but we need more retest of the lows. Here's where I think we are compared to the last bear market and I'm only 60% sure of it, we might go down way more.

netedge · Nov 1, 2008

Quote from mister_doodi:

I think we are close to a bottom but we need more retest of the lows. Here's where I think we are compared to the last bear market and I'm only 60% sure of it, we might go down way more.

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There is no question we may continue to do some basing here. I would suggest that is what we have been doing since Oct. 10th. However, there is no hard and fast rule that says we have to go sideways from here or back down to retest again. Those traders that stay on the sideline and wait for the next down leg or retest may miss a substantial rally from here.

ammo · Nov 1, 2008

if the market is priced 6 months forward,the only thing i see is sideline money needing to not miss a rally,6 months out i see a lot more unemployment and less spending ,lowering the gdp and the marlket,so fundementally this is a bear mrkt rally,we would need a new invention like the telephone,home computer,sliced bread, we had the dotcom bubble,the real estate bubble,what's next, the alternative energy bubble. We may go and touch the 1929 and 1987 tops trendline and push thru this time ,i believe its around 800-815,the lower side of that channel for those years is around 550-600 in the spx,

netedge · Nov 2, 2008

Quote from ammo:

if the market is priced 6 months forward,the only thing i see is sideline money needing to not miss a rally,6 months out i see a lot more unemployment and less spending ,lowering the gdp and the marlket,so fundementally this is a bear mrkt rally,we would need a new invention like the telephone,home computer,sliced bread, we had the dotcom bubble,the real estate bubble,what's next, the alternative energy bubble. We may go and touch the 1929 and 1987 tops trendline and push thru this time ,i believe its around 800-815,the lower side of that channel for those years is around 550-600 in the spx,

One thing is missing from your assessment ammo. The markets factored in a global financial meltdown altogether when we hit the 10/10 bottom. If we don't ulitmately get that then we have a rebound to "fair value". Fair value says stocks recently are ridiculously underpriced by historical standards - regardless of the current economy.

I agree that we may not be heading into a long term bull run at this point. But it also does not mean we need to go down further because of the upcoming expected bad news. That bad news has been factored in for the most part. With the exception that if there are more catastrophic failures to come we could potentially break to the downside.

But what I see instead at this point is a very gradual stabilizing getting underway. I must say I am very happy to see the general gloom and doom of many on this thread as the markets tend to climb a wall of worry and we do need that to thrive.

gkishot · Nov 2, 2008

Netedge, what is your estimate of the market's "fair value"?

IShopAtPublix · Nov 2, 2008

Quote from mister_doodi:

ST wants to believe that we will go straight up from here with out a basing. That chart is what he sees right now. In a cyclical up trend that might be possible but we are taking about a depression and a market collapse here, there will be no sustainable and substantial rallies produced without basing.

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I think we are close to a bottom but we need more retest of the lows. Here's where I think we are compared to the last bear market and I'm only 60% sure of it, we might go down way more.

Exactly right. Base is essential here. You don't just bounce like a ping pong ball. It is also VERY telling that in 2002-2007 bull markets SP only slightly topped its previous all time high and NASDAQ was nowhere near its high. I say the next decade will be spent "wasting people's time" ala what happened from 1964-1982 I think.

netedge · Nov 2, 2008

Quote from gkishot:

Netedge, what is your estimate of the market's "fair value"?

I am not a "value" investor per se although I certainly listen to those that are to see where we are historically on such matters. The general opinions of those that follow PE's etc. is that we would expect to be no lower than SPX 1200 based on current fundamentals. The value investors are buying now.

We all know their timing isn't always the greatest but they have a long term perspective and base their buying around historical values. We have to keep in mind we never really broke the highs of the prior bull market in '99/2000 so stocks were not NEARLY as overvalued in '07 as they were leading up to our prior correction. And we have corrected nearly the very same distance as the last time.

netedge · Nov 2, 2008

Here's my quick weekly assessment of current relative strength in the markets vs. the S&P:

-Dow outperforming
-Smallcap and NASD underperforming
-Retail showing sudden strength
-Internet underperforming
-High tech underperforming
-Semi's underperforming
-Biotech mixed
-Oil outperforming
-Utilities outperforming
-S&P100 outperforming
-Telecom underperforming
-EAFE underperforming
-Gold underperforming

ETF's showing a 5 day recovery may be underway:
-RSX
-GUR
-URE
-TUR
-RMM
-UWM
-BJK
-USD
-UCC
-UKF