Stocks markets are ready to rumble as the SPX is printing 840 as I write this.I guess the excuse today is easing up of the mark to market rules but whatever the cause the move is big, could be the fuel for the huge bear market rally I have been expecting for months but a bit of temperance is in order.
Moves of 20% that occur in just a matter of days is emotional, reactionary buying and these moves most often occur in a bear market.
It would not surprise me to see a bear market rally get up near 1000, I was not kidding when I said 'huge bear market rally,' but the biggest moves do occur in bear markets. If this idea holds water then we should be prepared for some sort of big move down again. It would not surprise me if big up followed by big down repeated a couple of more times but we'll see.
The S&P 500 is still 160 points or so from its 200 DMA but the 200 DMA is dropping very quickly. The market taking back its 200 DMA regardless of the level that occurs would obviously make me more optimistic and trigger a slow (I'd prefer not to get whipsawed) re-equitization.
16 comments:
Roger--Do you make a distinction between the market taking back the 200 dma vs. the 200 dma taking back the market? In other words, why would you judge demand for stocks to be healthy if a rapidly falling 200 dma line slices through an SPX that's just bumping along and not heading north?
Maybe that's a distinction without a difference, but it seems important to me.
Thanks very much.
Crossing over and then keeping something like a 200 DMA or 50 DMA is not easy which contributes to why they are significant.
I mentioned slow re-equitization in the post but it is a sign of changing demand.
Please share Roger,
what have you told us already
about sector rotation?
IYT is taking off today...
do you see this as sector
rotation...
I'm in the agriculture camp.
MOOOOOOOOOOOOOOOOO :-)
i suppose it could be a positive rotation but i tend to think of 10% moves for entire industries as being more panic-like than anything else.
this is the end of the massive bear market rally, not the beginning.
we already moved up 25% from the lows.
20-25% is fairly normal for a bear market rally, it is not a massive one.
I am still in my equity positions and close to break even for the year as I type. I did not anticipate the down turn being as severe as it was this year, but going forward I think this market is very difficult to predict.
I can see 2 more months, 5 more months or 2 more years to the upside from here. I also think we could fall sooner than that and further than you may think.
I have been rather bearish for a while and I am no longer convinced the FED will show reasonable restraint in the future. Either way volatility should continue.
Do not get biased and locked into a point of view here as things may not be as predictable as you might like to believe.
Seg
i am still down 10% this year and over 60% off the highs. Who cares what moving avg is doing, i am being mauled by this market.
It would not surprise me to see a bear market rally get up near 1000, I was not kidding when I said 'huge bear market rally,' but the biggest moves do occur in bear markets. If this idea holds water then we should be prepared for some sort of big move down again. It would not surprise me if big up followed by big down repeated a couple of more times but we'll see.
.......
The market taking back its 200 DMA regardless of the level that occurs would obviously make me more optimistic and trigger a slow (I'd prefer not to get whipsawed) re-equitization.
Roger,
From a portfolio management perspective (increase equity exposure or decrease equity exposure), isn't there potentially a really big conundrum/contradiction here, and I am genuinely interested in your plan because I face the same dilemma.
Let's assume for the sake of argument the S&P 500 gets within 3-5% of the 200 DMA. It either is a monster bear market rally or it isn't and is the start of a new bull. But IF it is a monster bear market rally and the probabilities point in that direction, then the right call is to start reducing equity exposure in advance of the next big downleg.
But then the market continues going up, breaking above the 200 DMA, and holding it for say a week or so. Do you start boosting back the equity exposure you just sold?
Or are you NOT planning on reducing any equities on say the S&P 500 moving another 50-100 points higher.
Seems to me one has to attack the issue with a clear plan as to whether it really is a bear market rally or the start of something bigger. Seems difficult to impossible to reconcile the two views to the same plan of action.
Right now, I'm personally inclined to the monster bear market rally view with the idea that any move to 900-1000 is the market giving a gift to reduce equities at favorable prices.
At the same time, I guess I would still need to stay open to the possibility a bigger, sustained upmove is possible, although my personal preference is for the 50/200 day crossover which has much less whipsawing and looks to be a better indicator of either a sustained uptrend or sustained downtrend
http://www.decisionpoint.com/ChartSpotliteFiles/090327_rally.html
ANSWER: You are right that these are the kinds of readings we will get at a bottom; however, in a bear market, there is about an 80% chance that bullish readings will be wrong, so be careful. Our mechanical models will pull us in long before we actually know that a new bull market has begun. For us, it will be a bear market until the 50-EMA crosses up through the 200-EMA. at that time we will start shading our analysis and conclusions with a bullish bias.
RW, you out there? Been reading your comments for a long time and I've got ALOT of respect for your views/analysis. How would you approach this issue in your strategic portfolio? What would you be looking for to distinguish a monster bear market rally from the real deal of a new structural bull market.
anon 2:50, not sure if you were reading this site in 2007 but if you had cared a year and a half ago you wouldn't be getting mauled. looking forward it is a good bet the next bear will start with a breach of the 200 DMA that no one is worried about.
Mike C I will answer you tomorrow either here or on greenfaucet.
"but if you had cared a year and a half ago you wouldn't be getting mauled."
Roger, I don't know what it is...
but, I don't think it's a matter of
caring...something happens to people when the market tops...
some take profits and others
think, or hope, or whatever that
it will go up forever. I think
those people are gamblers not
investors. JMO
thanks for sharing:-)
Hi Roger,
Out of curiosity have you ever considered a dollar cost average approach to reequitization versus waiting for the upside brach of the 200DMA. The reason I ask is the market is up 25% or so from the bottom and one will miss a large chunk of the upside movement by waiting for the 200DMA. Please clarify your thoughts on this?
This is the sort of period when the buy and hold investor can sit back and be amused at all the market gurus and predictors babbling: "It's a bear market rally; no, it's a new bull; no, it's a temporary bull within a secular bear, etc. What a cacophony! I say, the hell with moving averages, put this move into overdrive, and let's shoot for the moon, now! Since we confounded the conventional wisdom going down, let's also bollix them on the way up!
anon 6:10, i've written about this countless times. it is exactly why I don't go 100% cash. please take a look at the archives search 200 dma or defensive strategy.
My strategic portfolio moves are always ‘late’ for fairly obvious reasons : When preservation of capital is paramount then trends have to be confirmable and the research on sustainable returns strongly supports the notion that trying to catch bottoms does not reliably make money over time even if it can get you bragging rights now and then; timing is not the problem, trying to time with precision is, and the vast majority of the time being late is better than being wrong.
But I have to watch my own prejudices like everyone else (ought to). I’ve invested the past decade (since 1999) on the assumption that we, and a significant segment of the world, live in macroeconomic conditions wherein a secular bear market is the most likely norm: When credit exceeds good ideas and mal-investment rules the roost what else can be expected? But that’s close to becoming a habit by this time (not necessarily a bad habit mind you).
So are we currently in a bear market sucker’s rally, the beginning of a cyclical bull within a secular bear (a la 2003), or is the ice finally breaking and a new secular bull beginning? I don’t know. I do know that I don’t see a catalyst, a growth engine (other than improved liquidity) going forward, and I see too much political resistance to real growth ideas such as alternative energy, integrated information/energy infrastructure, carbon trading, universal health care, general infrastructure or educational system repair, etc. -- the kind of initiatives that can really break the ice -- so I strongly doubt the secular bull scenario.
But I am more than willing to admit my own ignorance and potential for error so I’ll continue to swing trade in my tactical accounts as if none of this matters (mostly it doesn’t there) and will continue to mildly increase long exposure strategically, feeling nervous about it all the way: Wall of worry, here we come (I hope).
Been checking tha TA a lot this weekend and looking for 884-887, then a drop and what happens next super important. I also like the idea of waiting for the 50 dma to cross above the 200 before declaring it's over. More likely to roll over, whether sooner or later, into 2010-2011. As for which sectors may outperform - I don't really like to recommend it because of the nature of it, but one respected analyst has said weapons will be the next bubble, and SWHC does indeed look poised for that ... sadly.
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