Picking bottoms just gives you stinky fingers

[*T*]

Some pertinent observations made by Denninger (http://market-ticker.denninger.net/archives/634-Beware-Bottom-Callers.html):


1 - The stock market typically turns around about six months before the economy does. If you believe we are at or near a bottom, you must believe the economy will turn arobeund no later than May or June of next year. Carefully think that one though, ok?

2 - Bottoms are not made off "V"s. Historically, it simply doesn't work that way. Go back and look at 2000-03. There were three separate tests, the first of which failed, and the entire process took nearly a year. Many people bought the first recovery and got it in both eye sockets when that rally failed, only to watch the spike just barely go lower and reverse - they not only bought the top on the rebound but then sold the bottom! Yikes!

3 - The 13/34 EMA (or 20/50SMA) on a weekly basis is widening. It is, in fact, at the widest it has been during this bear market. Let's talk about the possibility this bear is ending when the 13 EMA (or 20SMA) is pointing upward or at least has flattened, ok? These signals are not perfect but they do work.

4 - If you are still in the market long, you're gambling no matter what you do. I have gotten a lot of emails asking me "what do I do now?" from people with portfolios that are still invested. Never mind that I'm not a registered investment professional and thus can't (and won't) give specific advice, the fact remains that you sat through a nearly 50% decline and now on a 10% bounce you want to know what's next. There is no correct answer at this juncture. The right time to exit long was (at the latest) at the end of December of 2007. Any choice you make is a pure gamble on an outcome that neither I or anyone else can predict.

5 - The 2000-03 bear market was accompanied by a business recession brought about by the popping of the Internet bubble. At no time did consumer spending go in the tank during that recession; it never posted a decline! This time we're just starting to see real consumer spending declines, and this is a consumer-led recession - the ugly sort that happened back in the 1970s and early 1980s.

6 - The market lost nearly half its value in the 2000-03 recession without any consumer spending declines. The move from 1995-2000 was a credit-bubble led move. So was this one, but this one nailed both consumers and businesses. If we remove that excess credit and leverage this suggests we could retrace all the way to 450 on the SPX!

7 - On a technical basis this is a clear 8-year separated double-top. Basic chart analysis suggests that when such a pattern is confirmed, as this one has been, you are likely to lose the entire move to the first top. That also targets 450 on the SPX.

8 - The 2000-03 decline required two full years to reach close to the bottom. It also "counts" on a monthly chart as five waves of decline, in accordance with Elliott Wave Theory. This decline only counts as three waves thus far on a monthly chart, suggesting that not only may (III) down not be complete, but even if it is, you still have (IV) and (V) to come! This also strongly suggests that 760ish, the 00-03 bear market bottom, will not hold. In addition this "bear market" is less than a year old at this point, having initiated in November or December of last year, and thus is less than halfway over on a historical time perspective compared to 2000-03. If you look at consumer-recession associated Bear Markets of the past (think 1970s) you will find that those are far more vicious than the 00-03 Bear, and the losses heavier. Thus, expecting the 00-03 experience to be the "end point" is, in my opinion, hopelessly naive.

I would also note the parlous state international shipping is in. People have forgotten what REAL PAIN is - they think this is it; it really isn't!

[phirang]

TARP is a huge fraud... we were mugged.

[bart]

Being even close to right and trading temporary bottoms and tops can be nicely profitable - its a trade within a trade... and the approach is not for everyone by far.

[*T*]

If you can call them right, great - but I can't, and the risk-adjusted return is tough for someone like me. With the VIX>60 I need one hell of an expected return.

[phirang]

Well, this is definitely not a good sign for gold bulls...

http://www.cnbc.com/id/15840232?video=909873380&play=1

[bart]

If you can call them right, great - but I can't, and the risk-adjusted return is tough for someone like me. With the VIX>60 I need one hell of an expected return.

It isn't easy for me either, and the bottom line is that it doesn't matter what the approach or style is as long as its profitable.

By the way, I did get a quality grin from the thread title. :cool:

[Lukester]

*T* -

Actually even joe average can get a rough idea of the advent of a sizeable trade. If you have a lot of money in the market that's just been mauled, you spend a few quid, rent the intelligence of a dozen halfway decent market technicians, and triangulate the highest probability window for a significant tradeable bounce.

This market decline, measured even against the largest ones in history, is far, far over-extended for a sizeable correction. Spending about $1500 among an assortment of technicians analyses is certainly sufficient to gain a better than average assurance call on that. The idea that we are all incapable of "knowing what will happen" is not necessarily true as we can enlist the seasoned market intelligence of a wide range of market technicians.

In massive bear markets really good technicians can actually decipher a tremendous amount. I think that Bart guy for instance, is operating with an "unfair advantage" while the rest of us get mauled. :D

We can indeed know the broad outlines of corrective reactions in the very largest crashes. They have percentage retracements which become high probability after a certain amount of uninterrupted decline. I've been scared stiff by this waterfall decline, as I was nearly fully invested (silly me) but the enlisting or "renting" of market intelligence has at least allowed me to glean that better exit points vs. worse exit points is a quite discernable factor.

And that works equally well for people with money to deploy as some utterly jaw dropping opportunities for the long term are emerging here shortly (next March). For example look at a chart of BHP Billiton and understand that this 800 pound gorilla of mining is perhaps the world's highest quality "globally diversified proxy mutual fund for minerals", and that it has been absolutely thrashed. It also is little appreciated that BHP are the largest URANIUM miner in the world and will be THE go-to energy stock of the late 2010's and 2020's. That is one gilt-edged stock to own for a 2 decades long keeper portfolio.

What I've triangulated from a dozen sources in the past two months is that we have a three part crash market. The first leg was from March past till now (in the metals, but stocks crashed the mid summer), now we will have what's likely a minimum 6 week rally (possibly a full two months), and in Jan - Feb - early March we'll have the "big bad mother" of a decline, deeper that this one, and that will be the washout of one of the biggest market crashes in living memory.

You can probably buy BHP then at the best price in a decade, given it's upcoming fundamentals as one of the world's energy and resourc leaders. Uranium sourcing will be huge out in 2020 as you'd know better than anyone.

Two or three of the sources I'm reading are calling for a massive USD zone bull market in stocks to ensue. I read that stuff and think someone must have slipped some LSD into my coffee. Seriously, I have no clue. I'm merely telling what I've read reiterated several times over - insisted upon with emphasis. Go figure. PM's may turn out to be a lackluster investment for years to come (I've also read), but we'll get a sizeable bounce in the next two months. That's what they are all converging on.

Out in 2014 the precious metals are said to suddenly go nuts as the massive latent inflation built in by what's unfolding now explodes to white-hot. But PM bettors in the next year or two may be stumped by their non-reaction to the hyperinflation already ongoing.

If you can call them right, great - but I can't, and the risk-adjusted return is tough for someone like me. With the VIX>60 I need one hell of an expected return.

[xtronics]

Isn't the P/E ratio still historically quite high? Especially for a recession? What is the current P/E for the DOW or the S&P100?

[rabot10]

*T* -

Actually even joe average can get a rough idea of the advent of a sizeable trade. If you have a lot of money in the market that's just been mauled, you spend a few quid, rent the intelligence of a dozen halfway decent market technicians, and triangulate the highest probability window for a significant tradeable bounce.

This market decline, measured even against the largest ones in history, is far, far over-extended for a sizeable correction. Spending about $1500 among an assortment of technicians analyses is certainly sufficient to gain a better than average assurance call on that. The idea that we are all incapable of "knowing what will happen" is not necessarily true as we can enlist the seasoned market intelligence of a wide range of market technicians.

In massive bear markets really good technicians can actually decipher a tremendous amount. I think that Bart guy for instance, is operating with an "unfair advantage" while the rest of us get mauled. :D

We can indeed know the broad outlines of corrective reactions in the very largest crashes. They have percentage retracements which become high probability after a certain amount of uninterrupted decline. I've been scared stiff by this waterfall decline, as I was nearly fully invested (silly me) but the enlisting or "renting" of market intelligence has at least allowed me to glean that better exit points vs. worse exit points is a quite discernable factor.

And that works equally well for people with money to deploy as some utterly jaw dropping opportunities for the long term are emerging here shortly (next March). For example look at a chart of BHP Billiton and understand that this 800 pound gorilla of mining is perhaps the world's highest quality "globally diversified proxy mutual fund for minerals", and that it has been absolutely thrashed. It also is little appreciated that BHP are the largest URANIUM miner in the world and will be THE go-to energy stock of the late 2010's and 2020's. That is one gilt-edged stock to own for a 2 decades long keeper portfolio.

What I've triangulated from a dozen sources in the past two months is that we have a three part crash market. The first leg was from March past till now (in the metals, but stocks crashed the mid summer), now we will have what's likely a minimum 6 week rally (possibly a full two months), and in Jan - Feb - early March we'll have the "big bad mother" of a decline, deeper that this one, and that will be the washout of one of the biggest market crashes in living memory.

You can probably buy BHP then at the best price in a decade, given it's upcoming fundamentals as one of the world's energy and resourc leaders. Uranium sourcing will be huge out in 2020 as you'd know better than anyone.

Two or three of the sources I'm reading are calling for a massive USD zone bull market in stocks to ensue. I read that stuff and think someone must have slipped some LSD into my coffee. Seriously, I have no clue. I'm merely telling what I've read reiterated several times over - insisted upon with emphasis. Go figure. PM's may turn out to be a lackluster investment for years to come (I've also read), but we'll get a sizeable bounce in the next two months. That's what they are all converging on.

Out in 2014 the precious metals are said to suddenly go nuts as the massive latent inflation built in by what's unfolding now explodes to white-hot. But PM bettors in the next year or two may be stumped by their non-reaction to the hyperinflation already ongoing.

What i am reading also - good info thanks

[ddn3f]

I really like how Lukester summarizes all of the stuff that he is reading. It is quite helpful.

[vdhulla]

I really like how Lukester summarizes all of the stuff that he is reading. It is quite helpful.

I agree. Thanks Lukester.

[Lukester]

Dudes. I never get any compliments from anybody. My primary function here is as the biggest pain in the butt on these pages. I'm a bigger pain in the butt than $#*, and that's saying something! Ask Finster (well Finster likes $#* because he calls him "maitre")! There is a list of people whom I've pissed off not just once, but regularly. Bottom line: I gots no good character references fellas! Some of these guys I suspect would gladly veer their car in downtown traffic just for the joy of running over my foot. :D

[Jim Nickerson]

I really like how Lukester summarizes all of the stuff that he is reading. It is quite helpful.

So you trust Lukester, or anyone else, to accurately "summarize" investment information without reference to whom he, or anyone else, might be summarizing?

My unsolicited advice to you and the guy below: stay away from people who seemingly know more than you do about investing and impress you with "facts" that cannot be confirmed.

[*T*]

Thanks for all the replies folks and Lukester for his extended opinion.

Remember folks we HAVE BEEN LIVING IN A BUBBLE and we need to change our paradigm to fit the new reality.

My valuation-based target for any equity is simple and I don't pay anyone for it. My worry is that paying people can lead to not thinking for one's self. Anyway I am too tight-arsed myself to do that :)

Firstly, the deleveraging has to end. The personal debt and debt servicing burden must reach something sensible.

Secondly, the specious assumptions of service economy / credit growth as the path to riches must be washed out.

Thirdly:
International shipping is f**ked. Until it starts recovering I am hunkering down for the stone ages.

Fourth:
Volatility is too high for me to consider owning stocks right now. Any real return is swamped by noise and I run too much risk of getting wiped out.

Fifth:
S&P earnings down to about $50 next year - a not unreasonable target I've heard bandied about;

10Y interest rates to hit about 10-15%;

Raw good inflation to be 5-10%;

Because of scarce capital, real returns to hit about 5% - a historical norm for farmland I believe;

So I expect a EBITDA/EV of 15-20% on individual stocks before I pony up.

Re. the S&P:

$50/.15 = 333
$50/.20 = 250

This seems brutal but not unrealistic for now.
Actually if it hits 500-600 I will reconsider.

[Lukester]

*T* - 600 on the S&P may be a good time to "relent" on your Calvinistic parameters. Cut us some slack over here guy. We're doing our damnedest to deflate the thing but it's acting a bit muleish about going down at the moment. :D

\Re. the S&P:

$50/.15 = 333
$50/.20 = 250

This seems brutal but not unrealistic for now.
Actually if it hits 500-600 I will reconsider.

[*T*]

*T* - 600 on the S&P may be a good time to "relent" on your Calvinistic parameters. Cut us some slack over here guy. We're doing our damnedest to deflate the thing but it's acting a bit muleish about going down at the moment. :D

Yeah I'm not looking too clever at the moment. And of course I've not factored in any dollar devaluation.