A severe bear market will be better | stockbee


A severe bear market will be better

Market Monitor: Bearish

  • Two days of rally attempt petered out on Friday. Even a catalyst like good earnings from Microsoft could not get the market to rally. Sellers hit the tape from word go.
  • This is typical of bear market rallies. They tempt you to disappoint. Those who keep playing such rallies at some stage get whipsawed so many times that they lose confidence. Also when you start playing for small moves, it becomes part of you and when the market turns for real and big moves emerge , you are still conditioned by bear market to capture small moves.Besides that your account slowly bleeds. So at least in my scheme of things, sideline is best strategy till we see enough proof of a turn.
  • This week will have even more volatility as the Fed decision on interest rate is due on Wednesday.
  • Once this bearish trend ends there will be lot of opportunities. In fact it will be very good, if this bearish trend persist for another 6 to 9 months and this correction becomes deeper. After that kind of phase, when markets rally, it is the easiest money you can ever make. However the market may not necessarily follow the ideal script and go down much from this level.


Editor said...

I agree with you completely. And I wish that the fed would allow the market to correct itself. I think that cutting interest rates isn't neccesarily always a bad thing, but last cut they should have at least let it bleed out a little first.

If they would have let their be significant panic until at least mid day during the recent cut, the panic would provide low enough prices for the value investors to create a floor, and the cut would solidify it.

Instead they cut in the face of horrible premarket action, resisting the downfall, but cutting while the prices were still above what the market would dictate, and should the market have continued to fall, the artificially low interest rates on top of the market in panic mode would have been extremely bad, and there would be further action to prevent it, and more money would be printed, and everyone saving money would be crushed by inflation and further devaluation of the dollar.

As it is, the cut was at least significant enough to prevent that from happening, but it seems that it is only going to result in a very short rally here and there as the trap gets set, and a lot of individuals go to buy raising the prices to high, and in come the bears. My thoughts are that a few months we will see a pretty significant reversal. The Brdley model is usually significant in predicting the date at which the market turns, but not the direction, and it seems to indicate a temporary top or bottom will occur early march 3/9 and early april, but the most significant of the year will occur in JUNE. Dan Zanger has said from looking at the charts that it could be a few months before the charts really have a chance to set up as well.

...Only thing I've still got is Gold GLD and an Ultrashort ETF, but with the rally in gold, it might not be as cheap in comparrison as something like silver or even oil in terms of price vs a couple years ago, and with the fed meeting comming up (even though I don't believe that they'll cut), I'll be trimming shares on both of these significantly as a precaution, and go from there.

Tom said...

Pradeep, people could be waiting a very long time if this turns into something serious. Lets hope this bear market does not turn into the 2000-2002 variety. That was 25 months from peak to trough!

Bear markets require new operating rules. Essentially, it comes down to selling all rallies and maintaining a short-side focus. This is a tough "reverse" mindset for most people to take. The alternative is to be safe and go 100% cash and just wait until market timing indicators turn positive.

With easy availability of ETFs for shorting or leveraged shorting of major indexes and sectors, this is where people should be looking. Year-to-date the ultrashort Nasdaq 100 ETF (QID) is up 34.6%. Other big short opportunities: Oil (DUG), China (FXP), Semiconductors (SSG), Financials (SKF), Real Estate (SRS).

In the short term this market will probably rally into Wednesday's Fed cuts and then tank on Friday when the jobs number comes out. Long term, however, the prognosis is not good. The economy is only just starting to suffer. It has not fully paid for the sins of the housing fiasco. In 2008 I expect unemployment to rise as layoffs hit many industries, loan defaults and foreclosures to rise dramatically, a major bank or brokerage goes bankrupt, and the biggest threat of all - corporate debt problems and a possible catastrophic ``disaster'' in the credit-default swaps (CDS) market.

Mac said...

Good comments, and although a long bear market is not fun, it is possible to make money during them if you can short, and with the inverse ETF's, it is possible to make some money even if you can't short. They are a necessary evil that allow new stocks and new companies to emerge to become new leaders that can make us all a lot of money if we get in them early in the next bull.

Pradeep, do you think we are setting up a terrific "sell the news" point on Wednesday afternoon into Thursday and Friday with another weak volume rally today?

Pradeep Bonde said...

At some stage this low volume rally will fail, not sure about this week.