I am not going to post any charts tonight because nothing is very new from last time. In brief, my suspicion is that we are relatively close to a significant/tradable bottom from a time standpoint (maybe a week or so, or less). However, as has been the case for the better part of the last year, even if you "know" a bottom will happen soon, price may not be so close to a bottom.
There are many reliable indicators from market breadth and sentiment surveys and fund flows that are showing extreme pessimism right now, however some of the most reliable indicators, which are the put/call ratios, are glaringly absent from the list. In fact, despite the S&P 500 barely 2% above the key Nov low and the Dow several percent below that low, the equity put/call ratios have been 0.65, 0.64, and 0.65 the last 3 days. Those are ridiculously low and are more on par with excessive complacency (not feeling the need for put protection). I would be very surprised if we make a significant bottom without those ratios jumping up a good bit.
What I think is most likely is a break of the Nov lows in the S&P 500 with a move down to the 650-730 range, followed by another "sideways" consolidation for a few weeks. The initial upward thrust off a bottom tends to be very strong, and I will want to try to catch some of that move if possible on one of the next trades.
As for the current SDS blog trade, any sharp decline tomorrow will likely trigger an exit signal, so just be aware of that possibility.
Pete
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Pete,
ReplyDeleteDo you ever use SIJ or UXI in your trading?
John
I have never traded those, but almost any sector ETF could be used to make the trades I suggest. For instance, with the financial stocks (or insurance stocks) often being the big downers, one could trade those sector funds as opposed to the index ETFs.
ReplyDeleteMost of the data, price patterns, and hitorical comparison studies the I look at are based on the S&P 500, so I just focus on the main index funds, mostly the S&P 500.
The S&P also has a significant portion of financial stocks in it, though the weighting has falling significantly during this berar market. So when I go for bearish trades, I tend to go with SDS, which is the S&P inverse fund, to get some of that inverse exposure to the financial sector.
If there is a specific reason you would be interested in those (industrials) funds let me know, or just trade them instead of the ones I suggest, though the prices for any limit and stop orders would have to be adjusted.
Occasionally there will be a study suggesting that one index should outperform another on a short-term basis and I do take that type of thing into consideration for the blog trades.