The Dead Cat Bounce?

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Morpheus's picture
Morpheus
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The Dead Cat Bounce?

Question for the board.

Is the present market trend a dead cat bounce or are we seeing an intermediate term stabilization in the markets? I am certainly under no illusions that "we're back" but my investment strategy may depend on how long this rally lasts. 

Many of the economists in the blogosphere, to paraphrase and summarize, thinks this is a sucker's market, and that the next leg down will likely come this summer or fall, as the flood of money into the stock market will peak at 98' levels only to discover the realization that the global fundementals are still utter crap. 

One blogger says that "we ain't seen nothing yet", and that the next trend down will be rapid, devastating and "bone crushing". 

So, do you think people are desperate enough to believe that the worst is over and thus this becomes a self-feeding speculative bubble, only to be met with a sudden, "bone crushing" dislocation? 

My inclination is to take advantage of this and buy as much precious metal as possible during this phase, hoping that the price FALLS, not rises. 

Opinions? 

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
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Re: The Dead Cat Bounce?

Ben/Pete/Gandhi -

Take a look at cat's latest on the Trader's Thread and see how that marries up with what you are thinking about. 

You need to combine what the charts are telling you is happening with what you think is going to happen based on history, research, etc.  When the charts are contrary to historical expectation, trade carefully and be ready to exit your position if/when it turns on you.

But when charts confirm your historical expectation..................

http://www.peakprosperity.com/comment/26300#comment-26300

Morpheus's picture
Morpheus
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Re: The Dead Cat Bounce?

I've looked at the technical bro. Let me look at your charts now. Smile

I put Ben up because he's my hero. Greatest Fed Chair to ever grace God's green Earth. 

Why is Ghandi showing up now though????

SteveS's picture
SteveS
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Re: The Dead Cat Bounce?

Also check out more discussion on this topic in this fourm thread:

http://www.peakprosperity.com/forum/timing-current-bear-market-suckers-r...

JAG's picture
JAG
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Re: The Dead Cat Bounce?

Pete,

Overall, I agree with your observations, except I think this rally is anything but a dead cat bounce. This is the beginnings of a significant rally, and I don't think it will be over until the majority of the traders believe that the bear market itself is over. This bear market rally has legs, the McClellan Oscillator has been overbought for 9 straight days and the market has powered right through it, something we haven't seen since 1991.

How long does this rally last? Who knows at this point? But with gold seemingly on the verge of a significant decline, I think this summer will prove to be an excellent opportunity to position oneself for resumption of the bear market in the fall or winter. Just remember, when you start to hear or read widespread talk about the bear market being over and how well the Fed pulled us out of the recession/depression, its time to be ready for all hell to break loose.

Just my inflation-adjusted 2 cents.

Jeff 

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RSLCOUNSEL
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Re: The Dead Cat Bounce?

We will only know what this current uptrend is when it has run its course.  However, there is detectable momentum and I have two strategies for which I am invested in now.  The specific issues and rationale are posted here

http://tedbits.blogspot.com/2009/03/bulldog-returns.html

Bottom line:  (1) Follow China and (2) keep "caps and collars" in place to get you out in case of sudden downturn and sell out when you've made the money you want to make.  Under current volatility I sell at a 7% loss or 11% gain unemotionally.

 

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
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Re: The Dead Cat Bounce?

Or it could be putting in the same Spring high that occurs every year.  Only to fade into the summer where we will test the Spring lows (~6500).

Or we could implode once the house of cards that is the economic stimulus plan (and everything else our administration is doing to "fix" things) falls. 

If that happens, look for 3500-5000 by the end of September-October.

But don't forget to trade the upswings - there are lots of people out there who think this latest move has legs and will buy anything you sell them.

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
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Re: The Dead Cat Bounce?
RSLCOUNSEL wrote:

Under current volatility I sell at a 7% loss or 11% gain unemotionally.

RSL -

Just curious on this.  So if you've lost 5% on a position you will wait to hit a 7% loss before you close the position?  And if you are in on a long chart - 233, or daily or higher and you get an 11% run, why would you expect it to end there?  Once a trend is established on a Daily chart, movement occurs for days.  Granted, there haven't been many Daily trades over the past few months, but when there is - strap in and hang on.  I've never been a fan of set profit and loss targets (other than zero loss tolerance) but if it works for you then keep hitting it hard.  We trade a bit differently wrt profit and loss amounts.

I have a zero loss tolerance - on rare occasion the trade that backs up on me turns and runs for what would have been a profitable trade.  However, it initially didn't go the way I expected it to so I'm gone.  Depending on the chart time interval I entered the trade with, I will let that amount of time elapse before I even look at the charts and trade again.  If I get in on a 233 minute chart, I look at the trade when the next 233 candle closes.  If the trade is going the direction I expected it to I stay.  If it is going against me, I close the position.  But I also monitor longer and shorter intervals to see how the trade dynamics may be changing.  A trade may transfer from a shorter chart to a longer chart (I like that) or the shorter interval charts can signal the exit point sooner than you expected so due diligence is required.  My only losses are commissions and relative to the trade principal that's noise.  This approach minimizes losses and that's the fastest way to make money trading - not maximizing profitable trades.

 

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RSLCOUNSEL
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Re: The Dead Cat Bounce?

DIAP:

 

I have this day job that takes me away from being able to watch the market.  Consequently, I need to set my strategies and then put them on autopilot.  It is true that in the evening, I may adjust the targets depending on patterns. 

My normal cap and collar is 20% gain and 8% loss. 

 

I do like your approach and when i retire (if I ever can) I will become more active.  Perhaps I can get some lessons. 

Take Care

RSL

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
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Re: The Dead Cat Bounce?

RSL -

Understand - Mrs. Dogs does 98% of our trading - I understand everything she does, but she does the lion's (lioness'??)share of it.  She hasn't been wrong this year.  When it comes to trading I sometimes feel like the head cheerleader who is dating the star quarterback.

Shoot me an email anytime you want to talk more.

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Erik T.
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Re: The Dead Cat Bounce?

Pete,

There are really two sides of this:

  1. How much steam does this bear market sucker rally have? (I don't even take the possibility that it's a true bull reveral seriously!)
  2. Will the next down-move be really big, really pronounced, and really scary?

My take on the above is:

  1. I haven't the foggiest clue. I was thinking that this sucker rally had legs (see other thread on this subject; link above). But it does appear to be loosing steam.
  2. I expect the next down-move will be the big one. I won't be at all surprised by 350 on the S&P or 4000 on the Dow.
Ben/Ghandi/Pete wrote:

Why is Ghandi showing up now though???? 

It's not showing up as Ghandi. Dogs said that because we know who you are, we know where you live, and we're watching you, Pete! Half those men you see hanging out on Las Olas Blvd. aren't really even gay. They're there to keep an eye on you, Pete, and they work for Ben. Be careful! :-)

Erik

Morpheus's picture
Morpheus
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Re: The Dead Cat Bounce?

Ohh Lord. My cover for Homeland Security is blown. Erik, tell me. What gave it away?

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Re: The Dead Cat Bounce?

LOL!.

I'm sure we all are on someones list, somewhere.

SagerXX's picture
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Re: The Dead Cat Bounce?

Sold out of one fund today.  Up 22% over the last coupla weeks.  Will close another one tomorrow -- it's been up 15-17% since the so-called "bottom" earlier this month.  Convert stock...to dollars...to more useful-for-the-future items...

Still keeping one brokerage account open to zizz around with.  Soon to start thinking about shorting the living daylights out of a likely suspect or three.

Oh, and since tomorrow's Friday...I go to our second biz location and on the way is a Gander Mountain store...so I'll see what shotgun ammo they have on the shelf and make some buys.  Ammo will make good barter. 

VIVA -- Sager 

Morpheus's picture
Morpheus
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Re: The Dead Cat Bounce?

Erik. If you were to jump in on this market and put limit orders in, what key indicators would you also use in this rather special environment to tell you to get the heck out? Any ideas?

Erik T.'s picture
Erik T.
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Re: The Dead Cat Bounce?

Pete-Ben-Ghandi,

May I simply call you PBG? :-)

I'm not certain I understand your question, so I'll try to answer as generically as I can. If I'm missing your point, please elaborate.

The only way I'm interested in being "in" this equity market is a short position against a major index like the S&P. The challenge is timing that entry. Although I am convinced we'll see lower equity prices than we have today, I also think there is room for this bear market rally to take off and surprise us. The problem there is a liquidity squeeze. When you use leveraged instruments like futures, you can get squeezed out of your position (and even liquidated in a margin call if you're not careful). For that reason, I never enter a short position without a premeditated stop-loss. If I went short the S&P at current levels, the highest I could realistically feel comfortable with a stop-loss would be around 150 pts above my entry. I therefore don't want to get into the short until I feel more comfortable that the bear market rally has less than 150 pts of steam under it. I was going to start averaging into a short at 875, hoping for a 900+ average entry point.

As far as major indicators for getting out, I'm primarily a fundamentalist, so my strategy would be to ride the trade until it either hit my profit targets or got stopped out. I'm not good at trading on technicals, although I do try to use my limited knowledge of technical analysis to choose entry and exit points for fundamental-driven trades. I'd be watching the historical resistance levels to adjust my exit. My fundamental view is that we'll go significantly below the 666 previous low, so I'd probably start averaging out of the trade at that level. How quickly resistance at that level is broken would say a lot to me about how aggressively to stay with or abandon the trade. Really strong resistance at 740 or any of the other technical support levels on the way down would also cause me to re-evaluate my fundamental belief that equities are headed well below the 666 low.

I continue to believe that for the next year or two the best trading opportunities will be in the commdity and bond (rather than equity) markets, but the short long-bond trade is basically on hold until the full effect of the Fed monetizing becomes clearer. I expect the current bear market rally to continue for another month or two, then I expect the "big down-move". My highest research priority at the moment is making my shopping list for what to buy on the bottom of the next down-move, but it won't be equities. I'll be increasing my PM and crude oil allocation assuming we see weakness there, and will also be adding long positions in a broader basket of hard and soft commodities. I think Jim Rogers hasit right: What happens next with equities is anyone's guess, but the fundamentals are strong for a long-term bull market in agriculture and other commodities.

I hope this helps. Like I said, I was a little unclear on the question.

ET

Morpheus's picture
Morpheus
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Re: The Dead Cat Bounce?

Actually I think you understood my question quite well because you directly addressed it.

Thanks. 

SteveS's picture
SteveS
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Re: The Dead Cat Bounce?

On FSN yesterday, in the first hour, they discussed this rally a bit. I came away with the opinion that although there are strong buying signals, they are being confounded by equally strong selling. This fits in with my feeling that a lot of people who are stuck in mutual funds 'just want out' and are going to sell whenever a rally makes decent headway. We have baby boomers retiring, and now I read that a lot of people with educational savings accounts didn't move into less volatile investments as their kids approached college age. So I feel there every rise will meet resistance. On my part it's a gut feeling, but it appears there may be something to back it up,

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