The bottom-picking thread (smelly fingers optional)

Keep in mind capital has gotten very expensive so to capture yield you best wait for a trend and not try and pick a bottom. The fed is about of moves. The treasury is out having an auction today. My guess is it flops.

Very rarely do you have new bull trend at this point in the election cycle. 2010 is more in line. Save your capital men you will need it.

Think about this, with fewer investment banks on Wall Street getting the market up again is going to take some real doing. Foreign countries are going thru hell right now they are not going to provide us credit any longer so BUCKLE UP/
 
Friday or Monday looking to me like the day we'll bottom IMO. Friday I think is favourite, everyone will be so scared to hold over the weekend because of bankruptcy risk in about 20% of the S&P lol. The few with the balls to buy could get some real bargains.

I am in ultra-safe investments (short-dated treasuries mostly, although I've hedged all my dollar exposure into Euros/Pound/Yen) and have a small % of capital in some deep out-the-money puts on brokers/financials. If a crash plays out, I will pyramid this position, rolling down strikes until we hit true capitulation. I think most people would be wise to trade small and focus on not blowing up, rather than trying to score massively - only go for it on size if you are experienced and have traded a crash before.

I've also wired some $$$ out of my brokerage accounts, spreading it around a few different bank accounts to avoid broker/bank blowup risk. Gonna withdraw about 5000 and stick it under the mattress too :)
 
Thanks.

While I wouldn't rule out 1987 again, I think that is pretty much a 100-year flood type event...or 50-year flood maybe (1929, 1987).

The VIX never got above the mid-40s in the 2000-2002 bear market, including Sept. 11. I noticed the VXO peaked close to its current level in 1990...probably at the height of the S&L mess.

Quote from makloda:

http://finance.yahoo.com/q/hp?s=^VXO

SP100 VXO data back to 1986
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Quick update. I now have about 5% of my net worth in puts - brokers/financials, and ES, spread between Sep and Oct. I wired 40% of my account balance out, just to hedge broker risk.

Today played out exactly in line with the "crash week" scenario. This is eerily reminiscent of the post-Sep 11th panic week. This is now the second down 4%+ day in 3 days. The VIX is high, but has not spiked yet, rather it's been grinding higher, telling me that true panic/capitulation is not here yet.

So far the market action is indicating a Friday intraday or (more likely) closing bottom, with Monday open being the ideal low-risk time to get fully long. If we have no crash by Friday, just weakness, then I would roll the anticipated market bottom back to Monday close/Tuesday open. If there's no crash by Monday close, then I'm flat out wrong.

Now is the time to get ready with your multi-year long-term investment shopping list. You will soon get an opportunity to make purchases at discounted prices that will, in many cases, NEVER be seen for the rest of the 21st century or possibly for all time. Attractive positions include:

1) quality growth stocks e.g. AAPL - 2 more big down days will see Apple at <20 times earnings, dirt cheap.
2) ultra-solid low-cost blue chips e.g. WMT, DELL - these are the products people will buy when money & credit is tight, and the stock PEs are cheap now, let alone after another 10-15% puke in the market.
3) deep value plays e.g. financials, broker/dealers, homebuilders
4) commodity producers - these have been *hammered* the last 2 months, yet the secular bull is still intact. They have undergone forced selling and margin-call liquidation, many are down 50%+. yet the long-term future is bright.
5) emerging markets, especially BRIC. They are down 50-66% and will fall further in the next 2 days if we have a selloff. Buying markets down 2/3 or more, when they have great long-term potential, is generally a good investment play.

In the next 3 trading sessions, there will either be a damp squib, or a crash for the ages. Current conditions are the most fertile for a crash since 9/11 and before that 1998 and 1987. If you are not going to make limited-risk crash bets using options now, then you have to ask - when are you EVER going to make them? And if you don't want to be on a crash, at the very least, you should be ready for one - with a shopping list of trading and investment buys.

Most important is to realise that this is a once in a decade trading opportunity. There will be huge moves and chances to profit in both directions. You don't have to play both sides, just getting one side right is enough, as long as you limit risk & losses on the other side. Play small enough to stay in the game, but large enough to be happy if you bet and wing.

Isn't this the kind of environment that every market player lives for? Good trading all!
 
Quote from Cutten:

I like to put 1-2% at risk once the VIX hits 30, double up when the VIX hits 35-40, and then put full size (3-6% risk) if and when I see full capitulation, or some kind of catalyst like a surprise rate cut.

Regarding trading vehicles, I like to use whatever is volatile and correlated to the S&P. In this case we have several candidates. Here are the rally plays that seem obvious to me:

Carry trade: Long AUD (Aussie dollar) short JPY (Yen).

Stocks: ES and ES calls. For more juice, choose battered blue chips that do *not* have bankruptcy risk. Or use ETFs that have been hammered. I would suggest GS/MS, and XLF/IAI. These have been crushed by the LEH/MER meltdowns, and should rebound huge once the lows are in.

Commodities: CL (oil) and CL calls. USO if your account is small. Also watch other markets, try to find which commodity acts most resilient in the face of the market downturn (except gold/silver, they rally on panic so may fall during a stock bounce). Look at NG (natty), SB (sugar), CC (cocoa), and the grains (C, S, W) for "tells". Crude has been hit hardest though so I would expect it to bounce fastest and furthest once the lows are in.

Bonds: these are a special case, since they rally on stock falls, and go down on stock rallies - except when the Fed cuts rates in a crisis. Then they can have another day or so of rate-driven rally, before they top out and the stock rally removes the flight-to-quality bid. So IMO you want to short bonds 1 day *after* the Fed/PPT cut rates in a panic, and the S&P is up big for 1 day at least. The 30 year (ZB) and 10 year are what I'd use. Puts are also worth a look.

Individual stocks: I'm more a futures/ETF player so not so hot on this side. Feel free to make any suggestions.
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Cutten- thanks for another very informative post. You are by far one of the most interesting/informative posters to read. What do you think of the consumer staples? I'm very high on KFT, KO, DEO, MO, PG at this point due to falling commodity prices and a flight to safety. Look at GIS-- came out with great earnings/guidance today. People gotta eat/drink/smoke and the price is right as most of these trade at low PEs relative to their historical PEs.
 
With vix up there now and Joe public bailing it feels the bottom is closer... but I think this time its different, not 87 or sep 11, its fundamentally deeper and I'm not expecting some huge bounce, but more of a sideways slump for a couple of years as the Implied vols fall off options and we all huddle around a candle to keep warm :-o
 
I know this time can be different but......

2z6tbba.png
 
Cutten -

I'm somewhat in agreement with you as I think we are going to see panic/capitulation soon as IRA's and 401k's get noticed and possibly raided by their owners for panic sales/liquidations. That may take a few days to occur, so we are certainly not out of the woods for a while yet (remember - not even OCTOBER yet!).

Right now, first priority is preservation of capital. Unfortunately, with 90 day t's yielding 0.04, you're not getting anything for it. But - you so iT ANYWAY!!!! Once that's done, it then becomes how do I profit from the panic?

I agree that this is at least a once in a decade (and possibly once in a generational) setup coming up. At least the direction has been well telegraphed. While buying options is a good way to the poorhouse, here I'll take that open end and trade based upon price and not worry about the I.V. Cheap insurance, even though its expensive.

Waiting on the banks until I see citibank in the single digits. Suspect a new era of banking - there may be much more pain to go through than we expect.

I am slowly averaging down into certain CEF's - infrastructure plays, and anything at a ridiculous discount. I've posted that elsewhere. Puts and Short ETF's where I can't buy options work too. Currency baskets and resources despite the recent beating.

Good luck to everyone. We are all going to need it.
 
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