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Timing the current bear market sucker’s rally for a short entry

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  • Tue, Mar 24, 2009 - 04:01am

    #1

    Erik T.

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    Timing the current bear market sucker’s rally for a short entry

Timing markets is dicey business and almost nobody can do it reliably. That said, I’m hoping to encourage some discussion in this thread aboutthe current bear market sucker rally, particularly with regard to how much steam it has before it reverses. I’m particularly keen to hear from the technical chartists in the group (Cat & Dogs? Strabes?). My own investing style is to focus on fundamentals to make trading decisions, then use technicals to time entries and exits. I’m much better at the former than the latter.

I blew it on the last round. I was set up with short S&P trades with entry limits that started at 950 and really racheted up in contract volume around 1000. The day we hit 930 I almost pulled the trigger on a few contracts, but decided to stay the course and hold out for my original entry target. We never made it… Had I entered the trade at 930 and exited at 700 (my original target), I’d have made 2 years living expenses in a month.

This time I’m trying to "time less" and be more disciplined… My first entry is at 875, and we got half-way there today. But you know, for some reason I just have this hunch that this rally is going to break out and be much stronger than the last one. I wouldn’t be at all surprised to see the S&P break 1000 this time on false optimism of a second half recovery, before the big down-move toward a 3- or 4-handle.

I’m starting this thread in hopes of starting an ongoing discussion as this bear market rally develops. I really hope the chartists in the group will pipe up with some technical perspective – definitely not my primary skillset.

There was a lot of talk about this sucker rally on this weekend’s FSN (first hour), before today’s big move. Sounds like the eliot wave theorists are also predicting that this one could have more legs than the last one.

I find myself tempted to cancel my 875 short entry and hold out for 900 or 925, but that’s the mistake I made last time!

What do you charties think about today’s action and the overall trend? From a sentiment standpoint, I think that there are lot of people just dying for a signal of optimism to start piling in, which is why I think today could very well be the beginning of a big move toward 1000+. Contrary opinions?

Erik

 

  • Tue, Mar 24, 2009 - 05:10am

    #2
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: Timing the current bear market sucker’s rally for a …

Erik, I wish I knew. Since I’m retired and have to live off my savings, this is a matter of more than academic interest to me. I’m a retired financial adviser, so I’m not ignorant of these matters. But that said, I have no idea what to do. My response so far has been to reduce my equity exposure to roughly 20% of my portfolio and increase my gold and precious metals (mostly ETFs) to roughly the same percentage. The rest is mostly in short term stuff like MM accounts and a bit of long term fixed income like iBonds and TIPS.

Every day I wonder what to do, and I’m supposed to be an expert at this stuff. Former clients call me and ask me what to do, and I’m hard pressed to advise them. These are extraordinary times.

  • Tue, Mar 24, 2009 - 05:16am

    #3
    Peak Prosperity Admin

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    Re: Timing the current bear market sucker’s rally for a …

Erik,

Why do you think this is a sucker’s rally?

I would think that stocks would stand to benefit in nominal terms from the trillions being thrown out there by the Fed-Government axis.

LYS

  • Tue, Mar 24, 2009 - 05:29am

    #4
    Peak Prosperity Admin

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    Re: Timing the current bear market sucker’s rally for a …

LYS,

Roubini had an excellent piece on this recently: http://www.rgemonitor.com/blog/roubini/255995/reflections_on_the_latest_dead_cat_bounce_or_bear_market_suckers_rally

In short, the bailouts solve nothing, and we’re still in a world of hurt. The money being thrown at the market is very likely to prop things up in the short term, but in the long term the fundamentals remain the same.

Erik

 

  • Tue, Mar 24, 2009 - 05:37am

    #5
    Peak Prosperity Admin

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    Re: Timing the current bear market sucker’s rally for a …

I’m not a timing trader…all I know is what the elliott guys are saying.  They have called this a major rally before the next serious down wave…so it’s a higher level upcycle than the previous one you were trading…it’s the first major corrective rally since the beginning of the major down wave that started in 07, whereas the upward move earlier this year was a sub-cycle up wave. But they haven’t forecast a top yet…they’ve just casually suggested a shot toward 1000 on the S&P.  It will happen in a 5-wave move though, moves up and down within the overall move up, so don’t be worried about daily down moves thinking it’s the end of the rally.  I tend to think they’re right given how the market is buying into the recent actions of both the Fed and Treasury.  It will take a while for this to be seen as the hollow fraud that it is…and the next major down cycle starts.

I’m ecstatic about the up wave.  Good chance to sell a house!

 

 

  • Tue, Mar 24, 2009 - 06:26am

    #6
    Peak Prosperity Admin

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    Re: Timing the current bear market sucker’s rally for a …

[quote=strabes]

I tend to think they’re right given how the market is buying into the recent actions of both the Fed and Treasury.  It will take a while for this to be seen as the hollow fraud that it is…and the next major down cycle starts.

[/quote]

Well said, strabes. That’s exactly what I’ve been feeling today: I read Roubini and heard from the elliot wave guys on FSN this past weekend, talking about how the market was going to fall for some bait that I thought they should be smart enough not to fall for. Then today they appear to have taken the bait. I have a feeling we’re about to start hearing all sorts of cheering about how the bottom is in and there will be recovery in the 2nd half and Geithner’s plan is working and Santa Claus is coming blah blah blah. Could last a while, we’ll see.

I’m learning to trust strong feelings of intuition… Just cancelled my 875 entry order. I’ll watch the price action and sit this out for a while. I do plan to start averaging in earlier this time so as not to miss the reversal, but I think 875 is too early. 950 feels better right now as a starting point, but I think I’ll leave the GTC order off the table for now and watch the tape.

Erik

 

  • Tue, Mar 24, 2009 - 01:08pm

    #8
    Peak Prosperity Admin

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    Re: Timing the current bear market sucker’s rally for a …

Anectdotally, I know people who are saying if the market just rises back to a certain level like 900 or 1000 then  they will sell out of their funds.  But if I ask them what real economic positives will drive that they don’t know.  Psychologically will they be able to pull out if things really do rise?    This may be just a rally built on wishful thinking by some and traders who take advantage of that.

  • Tue, Mar 24, 2009 - 01:36pm

    #7
    Peak Prosperity Admin

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    Re: Timing the current bear market sucker’s rally for a …

Well you guys are way ahead of me, but I’m hoping for a good rally so I can move out of some mutual funds. My personal guess is to see a decent downward correction as it breaks each 100. I just see it too often when these psychological (this site needs spell-check!) barriers are broken. I would bet a lot of people are sitting there waiting for, say, the S&P to break 900 or 1000, as the point they will sell at. I have a hard time seeing this rally being really strong. I know a lot of money is sitting on the sidelines, but I bet there is a lot of money wanting to get out. The other problem is the market is so skittish. If Geithner makes a bad speech, the market tanks, if he gives a good one, it rockets up. I don’t know how you account for those events.

In the end, though, I go to the gut. I just don’t see any good fundamentals going on. I know they are trying and there are some short term fixes. But there are just too many negatives. I have to think about the chances of an amazing upside vs. the chances of a terrible downside. I think I’d rather scratch my head and kick myself for missing the positive upside rather than not be prepared for the downside.

But good topic Erik. Hope to learn some good stuff.

  • Tue, Mar 24, 2009 - 01:54pm

    #9
    Peak Prosperity Admin

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    Re: Timing the current bear market sucker’s rally for a …

I’m not a technician, just a market spectator, but it appears this rally has no legs.  My reasoning is: Growth and prospects for growth have been hacked.  Only traders in this market, big and little, and poor long-term investors nursing really bad positions.  Big traders are in it for a quick kill.  Waves of LT investors still have not capitulated yet, are dying to.  This new market only has relative value compared to dollar, bonds, commodities.  Thats what I see… 

Hope I dont get too roughed up for saying this, but elliot wave forcasters sound like paper traders to me.

  • Tue, Mar 24, 2009 - 04:07pm

    #10
    Peak Prosperity Admin

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    Re: Timing the current bear market sucker’s rally for a …

The S&P and The Dow are signaling on the stochastic that they are overbought, and both have negative money flow.  They both just broke above their 50 day moving average yesterday, which they had not done since January.  If these indices stay above their 50day moving average, then this could signal that this rally could be sustained a bit longer.  However this market is extremely overbought and there is way too much overhead resistance. I will have to see how today finishes to see if we get a typical toping candlestick. The longer term downtrend is still in effect.

This is a great website where Dave Landry does a quick one minute overview of the previous days action with charts. 

http://www.projectstreamer.com/users/davelandry/mim032409/mim032409.html

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