Looking To Buy

Some sentiment indicators are not as stretched as they have been at prior lows so there is still room for this market to go lower. However, we are seeing some signs of the bottoming process:
  • Rydex traders have become bearish although there is still room before it becomes extreme.
  • We have seen numerous days of heavy put buying but it can get more extreme.
  • There has been panic, fear and a surging VIX.
  • The bulls have backed off in sentiment surveys but it still has room to get more extreme.
Even if this market ultimately retests the the March 2009 lows, the decline will likely be  a process of sharp declines and rallies. It is unlikely that such a decline would happen in a straight line. It is very hard for me to see this leg of the decline going much below 1020 on the S&P 500.  As we approach that area I am much more interested in building longs than shorting. Because the indicators have room to get more stretched I like the idea of selling puts that would put me in at lower prices. If we never get to those prices I will take in the premium and if we do get there I am happy to be an owner.

It looks like the whoosh lower I was looking for happened Friday after I left the office. As such, I no longer plan to be as aggressive on the long side unless we have another move lower this week. 

3 comments:

Chaos! said...

Favorable piece on PFE. Thought you were like minded.
http://contrarianedge.com/2010/01/18/the-case-for-pfizer/

Friday's action was a classic reversal. Should be bullish, but today's action disappoints so far.

Applesaucer said...

My guess is that we retest (and maybe even breach) the March 2009 lows, but not until two or three years from now.

Just a guess.

Applesaucer

PJ said...

If there's no recovery - and stimulus + inventory effects will start fading soon - then we could retest the March 2009 lows by the end of this year.