Quote from uptik2000:
777-
What makes you think that the recent action is similar to the 1987 bottom?
I'm not long or short overnights.......and honestly I hope surf's positions work out. i think surf is a good trader, it's surprising me that he has been adding to positions, but he must be doing it for a reason..I hope he makes out well.
I don't know that we are there, or that the situation won't get worse.
However, let's take the QQQs at a proxy for the NAZ, as that is what I am investing in.
Imagine I made my first investment at 24/26, a 25% investment.
The next investment I make at 21/23, another 25%.
The next investment 25% at 18/20, and a final investment at 12/15. Or you could say, 1400, 1200, 1000, and 800...if we get there. If we go to 800 on the Naz, that represents a decline of around 85% from the 5100+ highs. I am willing to take a chance investment on an index that has declined 85%, aren't you? We are currently down about 75% from our highs.
Look at the DOW following 1929, and see how far it fell in percentage terms, and see how well investors would have done if they began investing once the DOW was down 75% from the highs, and include averaging averaging down from those levels to achieve an average cost of maybe 80% to 85% from the highs.
What is the average out to be in the QQQs? Around 18 to 20 fully invested. That would have constituted a decline of 25% in the QQQ's from the 1400 level, and around an 85% decline in the QQQ.
I have done some research in the QQQs which indicates something interesting.
Right now, we have a relationship of about 53.33 Naz points to each QQQ point.
If we have a decline in the Naz to 800, that is say 500 points, for the sake of argument.
500 points down in the Naz means what for QQQ points? 10, 12, 14?
Likely? Possible? Probable?
And what kind of a bounce would you expect from that severe decline.
We are currently trading at 24 on the QQQ, with a lifetime high of around 115. We are now down almost 80% from the lifetime highs (79.16%) so in my opinion, the worst is over, especially if I am averaging down beginning at these or slightly higher levels.
In addition, because the QQQ is an index, and a weighted index, it can easily be adjusted to drop losers and add winners, and change weighting.
At its peak in 2000, the ratio of the Naz to the QQQ was around 44 to 1. So at the trough, at a bottom, what would we expect to see?
Currently, we see a Naz at 1278 and a QQQ of 24, or a ratio of 53.25 to 1. Will we see a major dump of the Naz to bring the ratio back in line with the QQQ and a return to previous relationship levels? Clearly, the QQQ is underperforming the broad market at this time.
In 1999, with the Nasdaq at around 2300, the QQQ was trading at a 50, or a 46 to 1 ratio, very close to the 44 to 1 2000 peak.
Some will point to MSFT, and say that if MSFT dumps in a big way, that will hurt the QQQ more than the Naz, but I suspect they will simply re-adjust the weighting and favor those stocks that are doing better.
So, I am banking on a strong QQQ, and a QQQ that will rebound at a faster pace than the Nasdaq.
If we were to return to the 45 to 1 ratio of the Nasdaq to the QQQ today, we would be at 28.4 on the QQQ, so there is a discount at present.
So, perhaps we are undervalued by as much as 20% on the QQQ relative to the broad markets.
As an investor, I am looking for any kind of an edge, and I see one in the QQQâs right now in a rebound and recovery scenario, especially if I get fully invested with a QQQ average well under 20.
This time may be different than other times, we may never rebound, but i doubt that...and I am willing to bet on that.
