Is It Finally Time to Buy? 18 comments
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Is it finally time to buy? This is the question that everybody wants to know the answer to these days. Now that the markets have “tested the lows,” is it off to the races?
I’m going to play devil’s advocate here and go against all this new-found optimism that seems to be all over the news. I’m not a permabear at all, and while I do think we could go a little bit higher here, I’m not convinced a bottom is in place.
Now, if we have a follow-through day on massive volume, breaking out of this descending triangle, then maybe we’ll go a little higher than I originally thought, but I suspect we’ll be turning back down soon. I won’t be rigid in this belief since traders have to be flexible, but I’m just having trouble finding places to put money to work on the long side.
30 Day - 60 Min
According to this chart (click to enlarge) we never really did go down and test the lows of early October. We’ve really been consolidating in a descending triangle with some rather negative characteristics.
While we do have some bigger volume-up days, they are hardly anything too exciting to talk about. The volume was barely above the 50-day moving average, and these past few days it has been declining.
If serious money were accumulating this move up, you would see huge volume pouring in; people would be tripping over themselves to buy. I think what we have here is short covering, some value investors dipping their toes in, and momentum players hoping to catch a tradable rally.
It will take some more volume and a decisive move out of this triangle to get me excited about this recent spike up. And the first sign of the markets moving back down will have traders exiting longs and going short. At this point the most likely scenerio is a pop up to sucker in as many traders as possible on the long side - and then the hammer will come back down.
30 Day - 60 Min
This is just a close-up view of the action (click charts to enlarge) so you can clearly see the lines of support and resistance. When you look at this perspective, the daily moves don’t seem so violent, but, as we all know, this is the most volatile time in most of our investing careers.
The Nasdaq appears to be making a series of lower highs and lower lows, and until this trend is reversed you have to assume that we’re still in a downtrend. It’s also significant to point out how volume always increased on the moves lower, and most recently it has decreased as the Nasdaq has moved higher these last three days.
The following is from Yahoo, showing how bear markets are infamous for having huge gains and we’ve only experienced two of these such days. I think that since all investors have never experienced this type of action, we are all to quick to jump on an 11% rally as the being the savior to end the bear market. This chart from the Great Depression closely resembles a stair step down pattern that the Nasdaq is currently in.
A look at the bigger picture reveals that seven of the ten biggest percentage gains occurred during the Great Depression. Six of them were mere bumps on the Dow’s way down. On average, the Dow declined another 60% after each bounce before the bottom was reached (see chart).
The biggest gain, 15.34% on March 15, 1933 marked the bottom of the three-year carnage. A 10.15% bounce on October 21, 1987 occurred within 10% of the 1987 low.
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This article has 18 comments:
Sorry about the visual....
The first time the lows have been tested will not be the last... The market has at least another 21% to bleed down to 750, if not more to 600 (which is what I really believe will happen) Some good advise now is to short the market down to whatever you feel comfortable with, take the gains and invest in the market when they are even lower than they are now. If you missed a buying opportunity when the market was at 800, you still have another chance, 950 is just way too high to start investing. I believe these numbers to be extremely conservative.
Before you jump into these waters, I merely wanted to let you know about the possibility that the market may not be ready for a large buy in quite yet.
Greed greed greed, thats all that American's heed.
Grab your asses, it's going to be a rough ride as unemployment SKYROCKETS when boomers [now] cannot retire, and of course won't work in meat packing plants next to illegals.
No jobs, no future, no Congressional incumbents and I'd advise all to do the same.
Sorry, JMHO
Al Czervik (Rodney Dangerfield's character in Caddyshack)
No bottom in sight yet. Enter the market for trading positions only, preferably on the short side.
This baby is going nowhere or going down, definitely not going up.
What does Capitulation look like for such a great contraction? If I were to guess, lines at the banks, people outright cashing out 401K despite penalties, Fire sale of assets and valuables for food, social unrest and some kind of regular protests in every city.
We're not even close.
Either I am seeing things that are not there, or next week is gonna be one fun ride.
Disclosure: long DXD, SRS
While this market is in a bear faux-rally, you gotta roll with it. I am now playing it in 2 day encrementss. Have to .. way too volatile, one day up the next down except the last three sessions. I will play next week on the premise that the banks are going to continue a temporarily slow down on hemmorhaging. Get me through to weeks end and we will ake it from there.
The funky thing, every one of my 12 stocks are all premier yielders.. all over 6%.. I do not have to bail.. bought them cheaper than dirt and if their yield goes up, I can sit them out. So I am thinking I really do not have the worries that some big blue chippers may have.
for the contrarians - there is mixed sentiment in the market. maybe you should half jump in.
it is hard to call a bottom when there is so much information that we know exists which is not exposed. are all the shoes done dropping? no more bank failures? no commercial credit crisis? no more impact from mortgage resets? no credit card crisis? no more countries failing? housing values climbing? ..........
The Dow bounced up over 600, came back down to look at the low and then off it went.
As much as I hate to say it, there just doesn't seem to be that much pain yet. I seem to recall everyone expected more downward action back then and as old Joe Granville used to say "the market climbed a wall of worry". BTW, I think old Warren Buffett is just nibbling here, picking off the cherries, negotiating nice sweet deals. I'm guessing he'll be ready to really pull the trigger when "all is lost".