Climatic conclusion to the bear

There are so many folks waiting for a climatic conclusion to the bear. They are looking for the type of high volume panic selling that is usally associated with a "major" market turn. We haven't even exceeded what is normally considered a normal healthy market correction. My thoughts are that the most stauch bear will never get their desired turning point and will miss a large portion of the resuming bull. All in all, throughout my 4 years of so on this board - the general overwhelming "underlying" board sentiment is decidedly bearish. That is something worth keeping in mind.

I generally don't pay much creed to bull/bear ratios. But you may be right, the vote generally follows the most recent results. Personally I have been bullish since 2002. When the sub-prime surfaced, I gradually turned bearish. I expect to see another 10-15% decline in 2008, at minimum. Last few days I have been shopping for a new car. I have never seen such empty show rooms and such hungry sales people ever. Same situation in real-estate offices. Does not look like we are any where near a LT bottom, in economy or the stock market. But then I could be wrong. The rebate checks could turn things around. But I am not convinced.

I hear ya. Personally, I"m not prepared for another 10 to 15 percent (before a substantial move up). Longer term - I also believe we will be lower. I am certainly not confident. I'm approaching retirement age and have had a good 30 year run and am getting more and more conservative recently. About 35 long the market indexes which still allows a good nights sleep. I look forward to the day that I am retired with my "retirement" very conservatively invested - and then I can do some trading with my play money account. It is so frustrating to have a serious interest in the market but be unable to manuver during working hours.

I was wondering why the markets were different back then...the type of V-bottom capitulation has occurred less and less over the years...and replaced with rounder flatter bottoms that produce less violent rallies. I remember the fall of 1998...when the fear was so thick you could cut it with a knife...-1200 to -1500 ticks for a few days in a row...and you wondered that if you bought extreme oversold would the dow would drop another 500 pts on you the next day...because it did.

On March 17 the equity put-call ratio closed over 1.20 yet the intraday tick hardly ever broke below -1000 the whole day!

I think it's because of the proliferation of hedge funds and various trading vehicles. No longer do you need to "capitulate" your underlying core position...you can hedge it with index options, short ETFs against it, go long a stronger sector in a long-short strategy, etc. So it his harder to "scrape the barnacle" to get people to part with their underlying. So bottoms take a bit longer...and when there are enough shorts and puts in the system it unwinds without the wholesale dumping of shares. But the pessimism unwindings are then less violent...say you have a core position of 50,000 shares of INTC and hedged it with short QQQQ and/or INTC puts instead of selling 50,000 intc on the way down which forces you to buy back 50,000 INTC on the rally...less pressure on the way down and up in the bottoming structure so less "V" action.

This type of bottom is trickier to go long..because it could always turn into a capitulation where oversold begets more oversold(where the shares of INTC are dumped and not hedged)...so you have to be prepared to be whipsawwed and use really good money management and risk control...or you can wait for the trend to be clearer. Right now there is a bottom...as long as spx 1270 holds I prefer to go long bottoms that dont have that such an obvious caveat to them...I'd like to think a real bottom with enough pessimism need not be dependent on a widely followed support level holding since it seems an oxymoron to me. If a bottom has washed out sellers...what difference would it make if the spx is down 22% from its highs instead of 20%?

So my read on the market. I think there are a lot of fund positions that never got capitulated...but hedged out the wazoo instead...so when the market goes down...they hedge more...aided with hedge fund short-covering which creates 400 pt up days with no follow thru. In a bull market I dont think you need a wholesale washout...but this market has trouble cutting through overhead supply everytime when it rallies. So I dunno and now avoid both bottom-picking and puts/shorts and prefer to see if the market can break this trading range from 1270 to 1390...but if spx 1270 doesn't break on a closing basis and capitulate...I would much prefer to wait for spx 1380 and short it with stops above 1400 than to buy at 1290 or here with stops at 1270.

Entre Good input, I too have been contemplating why the bottoms have become more rounded and lack capitulation. I figured it was because as traders begin to all watch for the same thing, the same thing disappears. Your explanation sounds more insightful though. This maybe one of those slow grinding turns that leave traders behind and is only noticeable in hindsight. As pdx5 was saying it is good to look elsewhere from the typical indicators that everyone looks at, to see what the economy is actually up to. My outlook ST Bullish IT Neutral / Bullish LT Bearish-- The main reason for this is exactly what sjj is all about, a baby boomer reaching retirement, moving out of equities to more conservative investments. There are millions of them. A lot of cash will leave the markets. Con

entre- thx for your round bottom thoughts...saved for contemplation.

LT Bearish-- The main reason for this is exactly what sjj is all about, a baby boomer reaching retirement, moving out of equities to more conservative investments. There are millions of them. A lot of cash will leave the markets.
Con

Con, about us boomers. The internet, the digital world paradigm shift is upon us.
As boomers retire there are MORE armchair "traders," investors, market fiddlers of all sorts.
Access and speed of money is affecting all players. It is hard to leave the table when the powers
that be promise to continue to destroy savings.

At the other end of the spectrum the digital world makes the big houses all knowing moment by moment.
The present rampant theft and corruption at the top will "redefine" markets but the internet ain't going away.

Edited by jack, 21 March 2008 - 01:03 PM.

ENTRE
I have reread your post. VERY interesting. Maybe it needs more attention and comment. I wonder if
you might repost it as the start of a new thread? Just a thought, thx for the post.
Jack

I was wondering why the markets were different back then...the type of V-bottom capitulation has occurred less and less over the years...and replaced with rounder flatter bottoms that produce less violent rallies. I remember the fall of 1998...when the fear was so thick you could cut it with a knife...-1200 to -1500 ticks for a few days in a row...and you wondered that if you bought extreme oversold would the dow would drop another 500 pts on you the next day...because it did.

On March 17 the equity put-call ratio closed over 1.20 yet the intraday tick hardly ever broke below -1000 the whole day!

I think it's because of the proliferation of hedge funds and various trading vehicles. No longer do you need to "capitulate" your underlying core position...you can hedge it with index options, short ETFs against it, go long a stronger sector in a long-short strategy, etc. So it his harder to "scrape the barnacle" to get people to part with their underlying. So bottoms take a bit longer...and when there are enough shorts and puts in the system it unwinds without the wholesale dumping of shares. But the pessimism unwindings are then less violent...say you have a core position of 50,000 shares of INTC and hedged it with short QQQQ and/or INTC puts instead of selling 50,000 intc on the way down which forces you to buy back 50,000 INTC on the rally...less pressure on the way down and up in the bottoming structure so less "V" action.

This type of bottom is trickier to go long..because it could always turn into a capitulation where oversold begets more oversold(where the shares of INTC are dumped and not hedged)...so you have to be prepared to be whipsawwed and use really good money management and risk control...or you can wait for the trend to be clearer. Right now there is a bottom...as long as spx 1270 holds I prefer to go long bottoms that dont have that such an obvious caveat to them...I'd like to think a real bottom with enough pessimism need not be dependent on a widely followed support level holding since it seems an oxymoron to me. If a bottom has washed out sellers...what difference would it make if the spx is down 22% from its highs instead of 20%?

So my read on the market. I think there are a lot of fund positions that never got capitulated...but hedged out the wazoo instead...so when the market goes down...they hedge more...aided with hedge fund short-covering which creates 400 pt up days with no follow thru. In a bull market I dont think you need a wholesale washout...but this market has trouble cutting through overhead supply everytime when it rallies. So I dunno and now avoid both bottom-picking and puts/shorts and prefer to see if the market can break this trading range from 1270 to 1390...but if spx 1270 doesn't break on a closing basis and capitulate...I would much prefer to wait for spx 1380 and short it with stops above 1400 than to buy at 1290 or here with stops at 1270.

Edited by jack, 21 March 2008 - 02:07 PM.

Great post, entre. You get at the heart of what a lot of people have been wringing their hands over in confusion. Please share more of your thoughts...on anything!

entre- thx for your round bottom thoughts...saved for contemplation.

LT Bearish-- The main reason for this is exactly what sjj is all about, a baby boomer reaching retirement, moving out of equities to more conservative investments. There are millions of them. A lot of cash will leave the markets.
Con

Con, about us boomers. The internet, the digital world paradigm shift is upon us.
As boomers retire there are MORE armchair "traders," investors, market fiddlers of all sorts.
Access and speed of money is affecting all players. It is hard to leave the table when the powers
that be promise to continue to destroy savings.

At the other end of the spectrum the digital world makes the big houses all knowing moment by moment.
The present rampant theft and corruption at the top will "redefine" markets but the internet ain't going away.

I am thinking more along the lines of Mutualfunds & managed 401k for the non trader types, as well as the spending habits of people as they age. I think fair amount of the general populations wealth is paper and is gone just as fast as when it was in 1929-32

Now I am clogging up a good thread, hope to hear more from ENTRE