Market Bottoms

[Smurf1976]

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.

On current trends this Friday 27 March (Australian time) will see the US surpass China's official infection numbers, currently at 81,545, with the US total reaching just on 100,000.

That's just assuming the current trend continues for the rest of the week. So it's just maths - keep following the current trend and that's what happens.

My assumption is that the US markets probably won't be too positive about passing the big round number (100,000) and outranking China on this and it could trigger more selling. That is of course just an assumption which relies on there being anyone left who hasn't already sold and who isn't a "bottom drawer" type investor.

 

[Knobby22]

The US government doesn't appear to care much about It's citizens. Did you see Trumps last speech about not trying too hard to stop it because it will effect the economy.

 

[axyd]

The US government doesn't appear to care much about It's citizens. Did you see Trumps last speech about not trying too hard to stop it because it will effect the economy.
US is not alone. Basically every single country did the same.

 

[ducati916]

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".

In practical terms this is what I mean:

The 'high' in VIX is (approximately) 80.
There were a number of days almost 80, but lower, yet the market was lower.
We will not see a higher reading than that this time round (that is my bet).

We could however see lower lows in the US markets (stocks) with lower VIX prices.
Therefore, the VIX 'lags' in that it's not useful in defining the bottom of the market. We had exactly this same issue in 2008.

It is a useful measure in that as volatility declines there are greater opportunities for a bounce or a bottoming process, of which bounces are part and parcel. The VIX does provide that information.

jog on
duc

 

[axyd]

I don't think it's correctly to call it a "lag" usually lag means time lag, and it's not like that with VIX. It's a perception of a risk. VIX will jump instantly as soon as there's the SP500 change or if there's any surprising news.

It's more like a first derivative, showing expectations of investors about the rate of changes (of underlying assets like SP500) in the near future.

The problem with future telling based on VIX. VIX is the average of crowd expectation about the future. The problem is - crowd is not good at predicting the future.

 

[InsvestoBoy]

View attachment 101670

In practical terms this is what I mean:

The 'high' in VIX is (approximately) 80.
There were a number of days almost 80, but lower, yet the market was lower.
We will not see a higher reading than that this time round (that is my bet).

We could however see lower lows in the US markets (stocks) with lower VIX prices.
Therefore, the VIX 'lags' in that it's not useful in defining the bottom of the market. We had exactly this same issue in 2008.

It is a useful measure in that as volatility declines there are greater opportunities for a bounce or a bottoming process, of which bounces are part and parcel. The VIX does provide that information.

jog on
duc

This is the completely wrong interpretation of VIX.

VIX is not the inverse of price, it doesn't need to make a new high or low when the price does. It's right there in the name, it is the Volatility Index. It is a measure of market implied future volatility.

The S&P 500 could go to 100 and the VIX might remain below 20 the whole way down, if the move is in an orderly fashion.

Does that make it lagging?

 

[qldfrog]

The US government doesn't appear to care much about It's citizens. Did you see Trumps last speech about not trying too hard to stop it because it will effect the economy.
US is not alone. Basically every single country did the same.

Including here with reactive and not proactive action

 

[ducati916]

This is the completely wrong interpretation of VIX.

VIX is not the inverse of price, it doesn't need to make a new high or low when the price does. It's right there in the name, it is the Volatility Index. It is a measure of market implied future volatility.

The S&P 500 could go to 100 and the VIX might remain below 20 the whole way down, if the move is in an orderly fashion.

Does that make it lagging?

Sure mathematically you are correct.

But I stated that the way that I use it in gauging a market bottoming process, is a 'practical' usage. You don't like that, or want to use it another way, knock yourself out.

At the end of the day this thread is only about trying to practically get in near the lows and thereby obtain advantageous positioning going forward.

jog on
duc

 

[axyd]

There's a so called the Secretary Problem in the Decision Theory https://en.wikipedia.org/wiki/Secretary_problem

It's about a similar problem - you presented with a series of opportunities, but you can see only the current opportunity and don't know about the future, and you have only one bet - and you need to decide if you should spend your bet on the current opportunity or keep it for unknown future opportunities that could be better or worse.

 

[ducati916]

There's a so called the Secretary Problem in the Decision Theory https://en.wikipedia.org/wiki/Secretary_problem

It's about a similar problem - you presented with a series of opportunities, but you can see only the current opportunity and don't know about the future, and you have only one bet - and you need to decide if you should spend your bet on the current opportunity or keep it for unknown future opportunities that could be better or worse.

And in that vein...I have commenced (profit taking) selling partial positions of trades entered. The assumption is that this is not 'the' bottom and is merely a bounce.

If it bounces higher, again, sell partial position, if lower, re-buy sold position.

At some point, there will be enough information that one can infer with reasonable probability that the bottom is in. Then, hang on for the big move.

jog on
duc

 

[ducati916]

The bounce is (probably) in large part to this:

https://www.barrons.com/articles/co...-details-51585151305?siteid=yhoof2&yptr=yahoo

We will bounce (as currently) but for how long how far.

jog on
duc

 

[ducati916]

So the bailout got passed. Stocks continued higher. Will the bounce last into Friday (US time), possibly. However you might see a ^ shaped market: higher into lunch and a bit of a selloff so that positions are not held over the w/e for 'bad news'.

I'll continue to sell into the bounce (as I believe it is a bounce, not a bottom) and rebuild cash positions ready to be a buyer again if we break previous lows.

I'm also looking at these chaps:

At some point, with trade in tatters and production inhibited, we'll see inflation in agricultural products.

jog on
duc

 

[ducati916]

Another look at market bottoms:

The question now is: what 'type' of bear do we have? That could provide clues as to how close to the absolute (nominal) bottom we may already be.

jog on
duc

 

[ducati916]

1918 Spanish Flu and the Market

The 1918 Spanish Flu was a global flu pandemic that affected nearly half of the world’s population at the time (or up to one billion people). The 1918 outbreak was the worst of the 20th century, and it fell under the H1N1 virus subtype, which is the same subtype as the current swine flu outbreak. It’s estimated that the 1918 flu killed anywhere from 20 million to 100 million people, which would have equaled a mortality rate of 2.5%-5% of those infected.

The 2009 swine flu is still new to the public, but it is beginning to stoke fear since 152 people have died from it in Mexico as of now. The current swine flu is nowhere near as bad as the 1918 flu pandemic, but we thought we’d look at what the US stock market did during that outbreak period. Below we have grabbed a chart from a CDC article on the 1918 Influenza that highlights deaths per 1,000 people infected with influenza and/or pneumonia, and overlayed a chart of the Dow Jones Industrial Average.

There were three pandemic waves from 1918-1919, with the worst coming from October to December of 1918. While fear of the flu was widespread, the market really didn’t react too badly. Following the first pandemic wave, the market sold off a little bit, but then rallied during the summer months before topping out prior to the second wave.

The market trended downward during the worst wave of the flu outbreak, but it only went down 10.9% from peak to trough, and then it rallied significantly during and following the third wave. World War I was also coming to an end in late 1918, so the end of the pandemic and the war probably contributed to the subsequent rally in stocks.

jog on
duc

 

[ducati916]

Originally published April 2009:

GENEVA (AP) — Countries planned quarantines, tightened rules on pork imports and tested airline passengers for fevers as global health officials tried Sunday to come up with uniform ways to battle a deadly strain of swine flu. Nations from New Zealand to France reported new suspected cases.

World Health Organization Director-General Margaret Chan held teleconferences with staff and flu experts around the world but stopped short of recommending specific measures to stop the disease, urging governments to step up their surveillance of suspicious outbreaks.

Governments including China, Russia and Taiwan began planning to put anyone with symptoms of the deadly virus under quarantine.

Others were increasing their screening of pigs and pork imports from the Americas or banning them outright despite health officials’ reassurances that it was safe to eat thoroughly cooked pork.

Some nations issued travel warnings for Mexico.

Chan called the outbreak a public health emergency of “pandemic potential” because the virus can pass from human to human.

Her agency was considering whether to issue nonbinding recommendations on travel and trade restrictions, and even border closures. It is up to governments to decide whether to follow the advice.

“Countries are encouraged to do anything that they feel would be a precautionary measure,” WHO spokeswoman Aphaluck Bhatiasevi said. “All countries need to enhance their monitoring.”

New Zealand said that 10 students who took a school trip to Mexico “likely” had swine flu. Israel said a man who had recently visited Mexico had been hospitalized while authorities try to determine whether he had the disease. French Health Ministry officials said four possible cases of swine flu are currently under investigation, including a family of three in the northern Nord region and a woman in the Paris region. The four recently returned from Mexico. Tests on two separate cases of suspected swine flu proved negative, they said.

Spain’s Health Ministry said three people who just returned from Mexico were under observation in hospitals in the northern Basque region, in southeastern Albacete and the Mediterranean port city of Valencia.

Mexico closed schools, museums, libraries and theaters in a bid to contain the outbreak after hundreds were sickened there. In the U.S., there have been at least 11 confirmed cases of swine flu in California, Texas and Kansas. Patients have ranged in age from 9 to over 50. At least two were hospitalized. All recovered or are recovering.

New York health officials said more than 100 students at the St. Francis Preparatory School, in Queens, recently began suffering a fever, sore throat and aches and pains. Some of their relatives also have been ill.

Some St. Francis students had recently traveled to Mexico, The New York Times and New York Post reported Sunday.

Preliminary tests of samples taken from sick students’ noses and throats confirmed that at least eight had a non-human strain of influenza type A, indicating probable cases of swine flu, city health officials said. The exact subtypes were still unknown, and the federal Centers for Disease Control and Prevention was conducting further tests.

Hong Kong and Taiwan said visitors who came back from flu-affected areas with fevers would be quarantined. China said anyone experiencing flu-like symptoms within two weeks of arrival an affected area had to report to authorities. A Russian health agency said any passenger from North America running a fever would be quarantined until cause of the fever is determined.

Tokyo’s Narita airport installed a device to test the temperatures of passengers arriving from Mexico.

Indonesia increased surveillance at all entry points for travelers with flu-like symptoms — using devices at airports that were put in place years ago to monitor for severe acute respiratory syndrome, or SARS, and bird flu. It said it was ready to quarantine suspected victims if necessary.

Hong Kong and South Korea warned against travel to the Mexican capital and three affected provinces. Italy’s health ministry also advised citizens to postpone travel to affected areas.

Symptoms of the flu-like illness include a fever of more than 100 degrees Fahrenheit (37.8 degrees Celsius), body aches, coughing, a sore throat, respiratory congestion and, in some cases, vomiting and diarrhea.

At least 81 people have died from severe pneumonia caused by the disease in Mexico, according to the WHO.

The virus is usually contracted through direct contact with pigs, but Joseph Domenech, chief of animal health service at U.N. Food and Agriculture Agency in Rome, said all indications were that the virus is being spread through human-to-human transmission.

No vaccine specifically protects against swine flu, and it is unclear how much protection current human flu vaccines might offer.

Russia banned the import of meat products from Mexico, California, Texans and Kansas. South Korea said it would increase the number of its influenza virus checks on pork products from Mexico and the U.S.

Serbia on Saturday banned all imports of pork from North America, despite reassurances from the FAO that pigs appear not to be the immediate source of infection.

Italy’s agriculture lobby, Coldiretti, warned against panic reaction, noting that farmers lost hundreds of millions of euros (dollars) because of consumers boycotts during the 2001 mad cow scare and the 2005 bird flu outbreak.

Japanese Agriculture Minister Shigeru Ishiba appeared on TV to calm consumers, saying it was safe to eat pork.

In Egypt, health authorities were examining about 350,000 pigs being raised in Cairo and other provinces for swine flu.

The WHO’s pandemic alert level is currently at to phase 3. The organization said the level could be raised to phase 4 if the virus shows sustained ability to pass from human to human.

Phase 5 would be reached if the virus is found in at least two countries in the same region.

“The declaration of phase 5 is a strong signal that a pandemic is imminent and that the time to finalize the organization, communication, and implementation of the planned mitigation measures is short,” WHO said.

Phase 6 would indicate a full-scale global pandemic.


jog on
duc

 

[ducati916]

So some charts:

So if it were to develop into a 1930 style depression, plenty of bounces and trading opportunities.

Re. oil, the current price war could create a price shock the other way. There is (or will be) a tremendous amount of supply destruction going forward. Yes, currently demand is low, but that will not be the case forever.

jog on
duc

 

[ducati916]

Always have to be careful of 'averages' as the river that is on average 4' deep can hide many problems:

Since 1871, market downturns have recovered as follows:

• 33% of market downturns recover within a month
• 50% of market downturns recover within two months
• 80% of market downturns recover within one year
• 95% of the time those big "once or twice in a lifetime drops" return to even in three to four years.
• Collectively, since 1871, the time it takes for the market to recover (top to trough to top again) is a mere 7.9 months.

jog on
duc

 

[ducati916]

You want to see a bounce...any one of these that works and watch the market explode higher.

jog on
duc

 

[ducati916]

So here we have the systems traders v the discretionary chaps: this pretty much mirrors the ASF community atm.

And we have 'insiders' buying their own stocks heavily:

I monitor the various systematic based strategies here on ASF, particularly Mr Skate's thread and systems, (although there were some discretionary purchases in there) which are currently not active. When the systems switch to buying (US based algos) there will be a further bull bounce. When the retail systems kick back in, we may well get an additional bounce or continuation of that initial leg higher.

The discretionary traders, relying on experience, gut feel, subjectivity, etc are actively in the equity market. Time will tell whether we are early and will get caught in a further downdraft, or, have secured some real bargains moving forward, hence the chart disclosing the insider purchases, as you would think that they have much harder data re. their companies currently.

Absent any deterioration in COVID-19, we will have the economic consequences to deal with. However these I doubt will create a lower low. The downturn in the economy (bankruptcies, higher unemployment, etc) will be mitigated to an extent through that reduced supply and resurgent demand as economic activity picks itself back up off of the floor.

The key will be whether the medical sector can get a grip on effective treatment and future prevention of COVID-19 to prevent a second wave of infections.

jog on
duc

 

[ducati916]

So this chap has modelled the outbreak.

Before I start, I want to explain what the tables above and below mean.

• The figures underneath the percentages are dates. The dates are estimates of when the country, state or city will have experienced 10%, 50%, 90%, and 99% of the total COVID-19 cases that they will experience in the first wave.
• The peak day is the day each has the most new claims.
• “Expected Total” is my estimate for the total number of reported COVID-19 claims in the first wave.
• “% pop” is the percentage of each population that will be reported as infected with COVID-19.
• “% complete” is the ratio of estimated current total cases to estimated final total cases fo the first wave.
• Pseudo-R2 is the percentage of the total variation in the total cases explained by my three-parameter nonlinear regression. Because the regression is nonlinear, it is not an F-statistic, and gives us only a spit-in-the-wind sense for how good the regression is. Some have asked if I could add error bands to my models and the answer is no, because the nonlinearity of the equation makes that difficult. I’m only working with Excel, and looking through my old Econometrics texts, they don’t have an answer for this one. Maybe I should start modeling in R.

jog on
duc