How To Play a Zigzag Market

A few odds and ends to chew on as we get ready for a whole lotta football (football starts here at 6 or 7am so I can take in a game and still have a full day out of the house which maintains marital harmony:->>)

A reader left a comment several days ago that I have been meaning to answer, sorry for the tardy response. The reader said that alternative investments are supposed to zig when equities zag, but lately the alternatives have gone down more than regular equities. My take on this may not be palatable, but I do believe it should be viewed this way.

Looked over the length of the bear market, many of the alternatives have zigged. Over the last month many have given up the ghost. I have touched on this a few times in the past. If you can blend in some things that don't start to go down until much later (commodities and Brazil) and can find some things that turn up much sooner, you have a chance for that zigzag effect over the whole cycle. Obviously the double short products are still zigging.

Here is a little tidbit from the WSJ about creating an exchange for airwave frequencies. Apparently there is some secondary trading of these, but accessing information is difficult to do. I can tell you from fire department experience that the business of using, changing, accessing and anything else to do with frequencies is not simple. While I doubt I would want to trade a frequency ETN, I do wonder if an index that captures price movements of this sort of thing might be a useful proxy for gaging the state of the economy.

There has been an interesting thread floating around about Bill Gross' recent commentaries that seem to be calling for a bailout. Barry questions whether Pimco is "genuinely terrified of a major meltdown in the global economy." I'm not sure what to make of any of this just yet, but it is worth watching as the implications are obviously important.

Much has been made (including on this site) about the vicious decline in commodities and emerging markets in the last seven weeks. There have been numerous vicious declines in the last five years, and at some point the vicious declines were followed by vicious rallies. That will either follow suit this time or not, but fast moves do exhaust at some point, usually a point that is overdone, and then go back the other way.

I tend to put less long term significance on fast moves, as this one has been, than on gradual moves that no one worries about.,

Comments

[GKM:]

"I tend to put less long term significance on fast moves, as this one has been, than on gradual moves that no one worries about." Very well said, but I don't think we're at that point in the cycle yet. The next moves will be more telling about the ultimate direction.

2008 Sep 06 12:19 PM

[MarvinMBA:]

Its amazing to me that zigs and zags are such items of interesting discussion. Lets face it...we are in a sinking market ship at this moment in time and all participants are going to feel some pain more or less...I suppose the more or less will be called zigs and zags but this is no more than what is to be expected and should be of no surprise to anyone on the boat. Meanwhile if we can keep the ship from sinking its more important than the zigs and zags...got to keep our eyes on the big picture....Marvin the Maven

2008 Sep 06 12:31 PM

[adan:]

when you can, post some examples of gradual moves you've worried about, or should have :-)

thanks

2008 Sep 07 08:28 AM

[Roger Nusbaum:]

look at SPX from Oct 2007 forward for a couple of months.

look at SPX from March 2000 forward a couple of months.

real bear markets start slwoly w/o much concern as opposed to the panics of oct 1997 or aug 1996

2008 Sep 07 11:59 AM