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

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Erik T.'s picture
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

 

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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.

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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

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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_...

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

 

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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!

 

 

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Re: Timing the current bear market sucker's rally for a ...
strabes wrote:

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.

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

 

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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.

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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.

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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.

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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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Re: Timing the current bear market sucker's rally for a ...

Jarhett,

Excellent observations, I'd say you were right about the brief, continued upward direction of the rally.

I recall someone somewhere saying "Watch out for a rally" because it could signal the beginning of a sharp drop-off in both the market and the overall health of our financial system; I sincerely apologize for not being able to find the original poster or thread...

What do you all think of this rally ending?
Are we in line for another sharp drop, or will it be more gradual?
There is a lot of talk about this being a good step in the right direction by the Mainstream - which solidifys in my mind that it's not. If the Taxpayers are buying toxic assets, it might be good for the markets, but what will this do to our economic stability?

Sorry for my lack of understanding, I really struggle with getting my arms around all this data, and thank you in advance for any light anyone can shed on this...

Cheers!

Aaron

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Re: Timing the current bear market sucker's rally for a ...

Plant Guy...

 I sometimes play the penny stocks...This looks like there is a good 'story' going at the moment.

In the end pump and dump imho.  Needless to say I'm on the side lines.  I got optioned out ;last week on

my last covered call..I will probably buy back in on the next let leg down to earn a little money( cc at the

money ). Been doing pretty good at playing the range until this rally happened.  Still no divis safe imo... a

bunch of lying CEOS out there. 

Best of Luck,

    nk:)

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Re: Timing the current bear market sucker's rally for a ...

Penny stock, like in Citi?

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Re: Timing the current bear market sucker's rally for a ...

Erik-

No way this thing is going towards 1000+, if it did I would seriously be shocked.  I think your 875 entry is a bit ambitious too.  If you trade the pivots perfectly, last time you would have entered around 860 and exited around 676.  Now a downtrend is higher swing highs with lower swing lows.  Therefore if the S & P went above 1000, we would be back at our November highs which would be signaling that the market has bottomed and that we are in a recovery.  A market has never bottomed on good news on I doubt that it will this time either.  In order to get to 1000 + you would have to clear the overhead resistance of 870, 900, and 936.  This is a lot of resistance to push through.  Personally I would look for you entry right about around where it is today to around to the 835 level.  Right now the S & P is showing a doji candlestick right now, which is typically a signal of an exhausted market that needs to reverse or consolidate.  The S & P moves on average 28 points a day so your entry should be within 28 points of today's close.  I would wait till tomorrow to look for confirmation.   Also on a weekly chart the S & P is in a bear area which is between 14 day and 20 day moving averages. Typically when a stock is in this area and in a downtrend this means the stock is in a perfect shorting area.  Once again look for confirmation and always use stops, in case the trade goes against you.  The  technicals are only right 70% of the time. 

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Re: Timing the current bear market sucker's rally for a ...

Market rallies are rarely sustained if the banking and financial indices are not following general market trends. 

The BIX.X is topped and turning over.  There are flying flag candle patterns scattered all throughout stocks in the financial and other sectors.

Couple that with the fact that there is NOTHING about the underlying market fundamentals that have changed to substantiate this sucker's rally.  Programmed buys from investment houses start an upswing - the uninformed public buys in behind the twitch and they never realize that they are buying from the investment house at the top of the run.  By the time they figure that out and start vomiting up their socks, they sell their holdings at the bottom of the dip to - you guessed it - the same houses that sold it to them in the first place.

Repeat ad infinitum.

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Re: Timing the current bear market sucker's rally for a ...

Dogs,

You and others on this forum are so much more eloquent than my ramblings! 

But I did manage to squeeze a little money out of bonds ; )

Don't you let that deal go down, bro! 

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Re: Timing the current bear market sucker's rally for a ...

Plant;

Lol no....As in .0002 cents and above...I also had blue chips etc dabbled in the other er still do a little nk:)

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Re: Timing the current bear market sucker's rally for a ...
plantguy90 wrote:

Dogs,

You and others on this forum are so much more eloquent than my ramblings! 

But I did manage to squeeze a little money out of bonds ; )

Don't you let that deal go down, bro! 

We used to play for silver
Now we play for life
One's for sport and one's for blood
At the point of a knife,

From one of my favorite tunes - "Jack Straw" - very apropos. 

We trade from the "blood at the point of a knife" perspective.

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Re: Timing the current bear market sucker's rally for a ...

Jarhett...

Fwiw   I agree in the best of times candles etc. work 70% if the time if that...

 Imo we aren't in that kind of market.  Certainly , this is nothing I have ever experienced. nk:)

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Re: Timing the current bear market sucker's rally for a ...
Jarhett wrote:

The technicals are only right 70% of the time. 

Hey Jarhett -

How's things?  I like your quote - but would offer this slight amendment.

"The technicals are only right 70% of the time.  And when the other 30% happens, traders do the wrong thing 100% of the time."

Textbook naked put sell/call option buy on Goldman last week.  ~$14 per share profit on a $6 move.  Was long gone before yesterday's pop - don't regret closing as hindsight doesn't count.  ROI can't be calculated - got paid for selling something I didn't own, bought calls with same money.  Every time I divide my $$ profits by the zero $$ I put in I get an error message.

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Re: Timing the current bear market sucker's rally for a ...

Dogs-

I am liking how things are looking right now.  I just bought some JPM puts earlier today, and i just love how it just turned over.  Thanks for your email last week it was very informative, I attended a seminar in november and I am in my first year of doing this, so I am learning a lot.  

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Re: Timing the current bear market sucker's rally for a ...

@ Aaron

I'm convinced the next major down-move will be the big one. 350 on the S&P won't surprise me at all. The elliott wave crowd seems to be predicting the same, albeit for completely different reasons.

I'm still at a loss to decide how much steam the sucker rally has, though. There is SO much "looking for the bottom" sentiment that I think an event like Timmy's half-baked plan - if believed effective by the masses - could fuel that rally toward 1000 or even higher.

Then again, as I said in the OP, my track record sucks when it comes to timing. I blew it last time by holding out for those last 20 points to 950, and missed a huge opportunity.

The next few sessions should be very telling. Today is what I expected - a bit of profit taking and up and down sideways action most of the day, then a little more buying in the final hour followed by some more profit taking. If we see a couple more big up days this week, I'll feel like my gut instinct that the suckers outnumber those paying attention was right. Interesting times to be sure!

Erik

 

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Re: Timing the current bear market sucker's rally for a ...

Erik,

Being right is mentally stimulating, being profitable is the goal.  Try to have no memory, it just clouds the objectivity.  Lately I leave so much money on the table it sickens me, but I have to fight that or else it will affect my ability to trade.  Volatility is opportunity in either direction.  Old saying "Bulls make money, bears make money, pigs get slaughtered." 

 

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Re: Timing the current bear market sucker's rally for a ...

Hey Erik,

Thanks for the information. I appreciate it.

It seems to me that people really want to believe that the bottom has been hit, and the chance to make your future in the market is now. I see it as a bait and switch tactic, that leaves shareholders and taxpayers holding the bag once they can no longer fuel the black-hole which is AIG and it's bretheren.

Any thoughts on how this compares to the Great Depression?
The rhetoric is so nearly identical it's alarming. Is this attempt at fueling the banks a last ditch effort to keep them from closing down with our money in them?

I can't help but think that if it wasn't for the taxpayer investment, the doors would say "Closed" on banks across the country.

Cheers!

Aaron

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Re: Timing the current bear market sucker's rally for a ...

Aaron, Erik -

The market is doing nothing today that it hasn't been doing since sheep, goats, cows, horses and poultry were exchanged in the stockyard behind the walled off street in Manhattan back on day 1.  Today they are "The Stock Market" and Wall Street" and money is exchanged for perceived value in companies instead of livestock.

The market has no consciousness, it isn't a sentient entity.  It is what it is.  There is no bait and switch, if people want to get in because they think the bottom is in, they will buy positions from people who don't think the bottom is in.  That's the way it has been and will be in the future.

Banks failed during the Great Depression, they will fail today - the market will still be there and it will go up, down or sideways.  People will make money, people will lose money.  There is no "them" wielding the Hand of Vecna to move the markets.

The people who will succeed in the market going forward will be the ones who take what the market actually gives them - not what they want the market to give them.

 

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Re: Timing the current bear market sucker's rally for a ...

Dogs,

Don't you think that government interference will influence how, when and which markets fail or recover?

That's an interesting perspective, and I'd never thought of it that way...

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Re: Timing the current bear market sucker's rally for a ...

Aaron -

Absolutely.  But if you look at the government interference as just another force that causes the markets to move, focus your efforts on turning those moves to your advantage.

A few months back when they suspended short selling in the financial sector we bought calls.  The financials exploded to the upside and there a lot of profitable trade opportunities.  The underlying fundamentals said that the companies still sucked and as soon as the short sell restriction was lifted - they tanked and we traded the down move.

I think it would be very helpful for people to adopt a market neutrality and stop worrying about things that just don't matter.  I love listening to people talking about beta or Earnings per share or my favorite, P/E ratio.  All of those metrics are "good" only when a company's stock price is rising.  Assuming a de facto green market bias is handicapping you to only trading the market in one direction.

Up, down or sideways - I don't care.  Just move.

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Re: Timing the current bear market sucker's rally for a ...

Erik-

What is your strategy to take advantage of the next down turn?  Are you using, puts or shorting?

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Re: Timing the current bear market sucker's rally for a ...

FWIW, I just read that the govt, even when buying, doesn't try to time their purchases, they just do it in their usual heavy handed way.  Makes sense to me, since price and profit isn't a factor in their thinking.  Also, a relatively low-paid govt trader would be a very different animal than a highly compensated Wall St. trader.

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Re: Timing the current bear market sucker's rally for a ...

My two cents worth. The Dow had a strong support level at 8,000. Now becomes a strong resistance level. The treasury market is showing early signs of an exodus. Obama's massive spending plans are spooking investors. I don't think this suckers rally will go past April. It rebounded because it was oversold. There isn't much more to it than that.

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Re: Timing the current bear market sucker's rally for a ...

@jarhett

I'm trading S&P futures to play the down-move. I had a standing order to sell a few contracts at 875, but cancelled it in favor of watching the tape. Everything is changing too quickly to just leave standing GTC orders open.

Erik

 

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