The Perfect Bottom

No bottom is perfect as one can always find some indicator that is not lining up. There are some ingredients missing here that would make a bottom easier to call:
  • We are not seeing the bears press too hard. Its always better when the bears are pushing things too far but anecdotally it does not seem like they are. 
  • The second the market started rallying the call buyers came out of the woodwork again on the ISE
But its also possible to make a decent case that we already saw the bottom:
  • Equity allocation levels are low at the hedge fund and at the institutional level.
  • In the AAII survey the bulls were at levels seen at major bottoms showing that the individual investor is not very bullish either.
  • We definitely had a whoosh lower and some panic (thank me later).
  • The CBOE put/call was fairly high today.
  • Today is day nine of the decline. It is quite unusual for a decline to go much longer. 
All in all it seems to me that we are a lot closer to some sort of a bottom after an 11% + decline but it would not be so surprising if this had a little more to go. 

4 comments:

Anonymous said...

My downside target is an assault on 20% off the high, which would be 976 in the cash S&P. The talking heads will be going on and on about an official 'bear market' and it will be somewhat self-fulfilling. That comes in right below the Aug 17th low as well. I expect a nice bounce off that area and I plan to take off most of my remaining shorts in front of that level.

If we bounce here I am looking for 1055-65 to sell into. I am 50/50 as to whether we bounce a few percentage points here or go straight down. Today was very weak, the rally couldn't even get up to yesterday's close. That does not bode well.

JD

PJ said...

I'm guessing there's a bounce off the NFP data tomorrow, maybe up to 1040 on the S&P, and I'm going to put my shorts back on then.

The rally today was a bit artificial, clearly there is high demand for the Euro and liquidation of gold driven in part by central bank activities. I suspect the NFP data may be used to force short covering.

Anonymous said...

I don't know, I find it interesting to watch you guys play the day-to-day moves, but I'm more a long-term and mean-reversion guy. I'm mildly short SPY and have been since April and I'm staying there until the market breaks 1000. Then I'll stay flat until and unless the market breaks 900. (I'm also a round-number guy.) Even at 900, I'm not sure I'd be getting a good deal. There's a lot of bad news out there yet to be revealed, IMO.

Anonymous said...

Nobel peace winning economist is calling a depression for several years!