Market Bottoms

[IFocus]

I am sort of waiting for the bulls on this site to throw in the towel, then we will be close to capitulation.

I think it will be a double bottom. You have to be careful to not get caught in the centre rise known I believe by chartists as the bum crack.

If we just stick to the virus then a second wave is inevitable and likely larger that could be another series of lockdowns more severe than what we are seeing now then a second market leg down.

That's more like northern hemisphere winter lets say starting Nov.

If lock downs cannot be released for 12 months then second leg down anyway.

That's all before secondary impacts appear from actions taken unforseen from lock downs.

 

[ducati916]

Volume at the bottom of Bear Markets: inconsistent.

Here, volume higher, dropping into the bottom and picking up on the rise out.

Volume (high) definitely marks the bottom.

The other Bear Markets:

1921 low volume
1929-1933 low volume
1949 low volume

2000-2002 market

Again, low volume marked the bottom.

jog on
duc

 

[ducati916]

Trading the Bear (if you get it right) is very profitable:

jog on
duc

 

[basilio]

I don't believe any other market situation is comparable to what is happening now.
We are watching three distinct crisises unfolding

1) Collapse of economic activity across the globe throwing millions of people out of work and threatening entire industries
2) Exponential increases in deaths caused by the virus adding another element to economic/social/political risks
3) A credit crunch arising as trillions of dollars of corporate and government debts become due while governments are printing more money to keep the system from collapsing.

Trying to pick when these events will be resolved from past events seems unrealistic.
To a certain extent many other market crashes could be seen as crises of confidence. Restore confidence and economic activity can slowly recover.
But that won't work when the economy is locked down by the government to control a pandemic that seems unstoppable without a total society lockdown.

 

[ducati916]

I don't believe any other market situation is comparable to what is happening now.
We are watching three distinct crisises unfolding

1) Collapse of economic activity across the globe throwing millions of people out of work and threatening entire industries
2) Exponential increases in deaths caused by the virus adding another element to economic/social/political risks
3) A credit crunch arising as trillions of dollars of corporate and government debts become due while governments are printing more money to keep the system from collapsing.

Trying to pick when these events will be resolved from past events seems unrealistic.
To a certain extent many other market crashes could be seen as crises of confidence. Restore confidence and economic activity can slowly recover.
But that won't work when the economy is locked down by the government to control a pandemic that seems unstoppable without a total society lockdown.

The 2008 Bear was a financial bear. The recovery was a V.

The 1929-1933 Bear was very different, as was the 1970-1982 Bear, as was the 2000-2002 Bear. Interspersed were a number of Baby Bears, which were just blips by comparison.

I don't think we get a V.
I think we get extended chop.

I'm interested in strategies that actively trade these types of bear markets.

jog on
duc

 

[Smurf1976]

I don't believe any other market situation is comparable to what is happening now.

This is all moving incredibly fast.

10 days ago we were still trying to run a Grand Prix in Melbourne and we still had festivals running in Adelaide.

Now we're closing state borders and shutting down anything not deemed essential.

And so on. Events in the real economy are unfolding incredibly rapidly at this point.

The second wave of panic in my view will be when the markets realise that this is not a 2 - 4 week situation but it's going to be quite some time before there's any return to business as usual.

 

[Smurf1976]

I'm interested in strategies that actively trade these types of bear markets.

One thought I have on that, and I have no firm evidence it's just a thought, is that an index will probably respond more predictably than any individual stock in this environment since what's driving it all is the overall situation rather than something specific to any one company.

That's just a thought, others might have a firmer view on it.

 

[basilio]

I believe the situation is too volatile to effectively continue. IMV far too much of the current markets is about trading systems intended as quasi gambling situations. Perhaps there should be a review of what financial products are still required and for what purpose?

 

[galumay]

Like every other bull & bear market, you wont know until you are able to apply hindsight.
Then every one is right.

 

[sptrawler]

Like every other bull & bear market, you wont know until you are able to apply hindsight.
Then every one is right.

Absolutely, this is where a long term plan that allows you to avail yourself of these opportunities, is paramount IMO.
A long time ago I read a book called 'sensible share investing', I think a guy called Austin Donnelly wrote it.
Like all the investment books, you only take from it, what strikes a chord with your personal beliefs or sits well with your personality.
The thing I remember from that book was, when you think the market is high and you wouldn't buy your favourite share, because you think it is too expensive it is time to start selling some.
The other thing he said, from memory was, never be 100% in the market and never be 100% out of the market.
Those two things sit well with me.

 

[ducati916]

One thought I have on that, and I have no firm evidence it's just a thought, is that an index will probably respond more predictably than any individual stock in this environment since what's driving it all is the overall situation rather than something specific to any one company.

That's just a thought, others might have a firmer view on it.

I agree. ETFs of sectors/industries or just broad based ETFs are what you would need to trade. As you say individual stocks would have that additional layer of risk.

jog on
duc

 

[ducati916]

I believe the situation is too volatile to effectively continue. IMV far too much of the current markets is about trading systems intended as quasi gambling situations. Perhaps there should be a review of what financial products are still required and for what purpose?

In the US that would be the quant algos.

2008 had this feel on the way down. It was relentless down bars day after day. Then it wasn't. 2002 was similar, longs just couldn't gain any traction, there would be a bounce, days, then more selling. That lasted for some time. It was hard to really do anything, long or short, as there was little to no follow through. Really daytrading was about it (for me) at the time.

To trade this market you actually need more volatility (via leveraged ETFs) that (assuming long only) that when they bounce, they bounce enough to unload positions or partial positions, as I am looking to build positions over time. This (in time) will be an excellent entry point for anything. So currently I am looking to build, unload a partial position on a bounce (to keep the red ink in some sort of control) and repeat until the market/world, returns to some sort of normality.

This means taking capital for a position, divide by 10 or 20 and add on the way down, selling some on bounces, repeat. It worked well in 2002 and really well in 2009. We'll see if it works in 2020.

jog on
duc

 

[ducati916]

Absolutely, this is where a long term plan that allows you to avail yourself of these opportunities, is paramount IMO.
A long time ago I read a book called 'sensible share investing', I think a guy called Austin Donnelly wrote it.
Like all the investment books, you only take from it, what strikes a chord with your personal beliefs or sits well with your personality.
The thing I remember from that book was, when you think the market is high and you wouldn't buy your favourite share, because you think it is too expensive it is time to start selling some.
The other thing he said, from memory was, never be 100% in the market and never be 100% out of the market.
Those two things sit well with me.

Pretty much what I do.

jog on
duc

 

[ducati916]

Like every other bull & bear market, you wont know until you are able to apply hindsight.
Then every one is right.

In the market, you never know.

What you are doing however is:

(a) this could go down with a probability of (say) 90%, but it could only fall another 20%; or
(b) this could go up, with a probability of (say) 10%, but if it goes up it could move 40%.

At some point (a) will reach 20% and 5% and (b) will reach 60% and 500%.

By drip feeding into the market, you pay close attention and when the bear ends you are ready and already partially positioned.

jog on
duc

 

[MovingAverage]

In the US that would be the quant algos.

2008 had this feel on the way down. It was relentless down bars day after day. Then it wasn't. 2002 was similar, longs just couldn't gain any traction, there would be a bounce, days, then more selling. That lasted for some time. It was hard to really do anything, long or short, as there was little to no follow through. Really daytrading was about it (for me) at the time.

To trade this market you actually need more volatility (via leveraged ETFs) that (assuming long only) that when they bounce, they bounce enough to unload positions or partial positions, as I am looking to build positions over time. This (in time) will be an excellent entry point for anything. So currently I am looking to build, unload a partial position on a bounce (to keep the red ink in some sort of control) and repeat until the market/world, returns to some sort of normality.

This means taking capital for a position, divide by 10 or 20 and add on the way down, selling some on bounces, repeat. It worked well in 2002 and really well in 2009. We'll see if it works in 2020.

jog on
duc

While I have no doubt this is a reasonable strategy, but there is no way I have the mental strength to trade anything in this rapidly changing environment—leveraged ETFs...yikes. Love your posts

 

[ducati916]

So (surprisingly) the VIX exceeded the 2008 high.

The VIX is a lagging indicator, but, provides some information. I don't think we'll see a higher reading this time out unless something really dramatic happens with COVID-19 in the US itself, which at this point is still possible.

The Russell is interesting and might be signalling a bounce:

It is broad and has an inside week (albeit nascent) that could form for a bounce this week. Time will tell. All the others (SPY, DIA, QQQ) were slightly lower lows to start the week. It is the shallowness of the new lows that might confirm the Russell.

The other 'tell' will be 'news', particularly bad news. How reactive to news at this point (watch the VIX) the market is to that news will provide important information as to how stable this level is (up or down). Normal markets operate at lower volatility (obviously).

jog on
duc

 

[axyd]

Yes VIX is a good indicator, I don't read news, just check VIX sometimes. It was terrifying couple of weeks ago to open the app and see VIX rise to ~50, and next week to ~70 and after one more week to ~80.

Don't think VIX is lagging. Otherwise it would be possible to profit by betting on VIX after SP500 fallen.

 

[IFocus]

5 weeks relentless selling, has to be close to the sharpest impulsive move down ever.

Trying to put into context what a bottom will look like while sizing up the damage both real and psychological to markets, participants, governments, businesses etc.

No bounce or consolidations or any technical hint maybe volume will give something at this weeks end.

Any recovery looking to me to be a real grind at best

 

[sptrawler]

5 weeks relentless selling, has to be close to the sharpest impulsive move down ever.

Trying to put into context what a bottom will look like while sizing up the damage both real and psychological to markets, participants, governments, businesses etc.

No bounce or consolidations or any technical hint maybe volume will give something at this weeks end.

Any recovery looking to me to be a real grind at best

I have been nibbling away, even if it falls more, how much? Another 10-15% at most?
Another 40-50% and there isn't a market left.

 

[InsvestoBoy]

The VIX is a lagging indicator

huh?

What do you base this incorrect statement on?

It's literally the market implied volatility for the next 21 days. At worst it is a coincident "indicator".