We’ve gotten several e-mails asking when I thought we will be at the end of this down market, so I figured I would put my thoughts here as well.
The short answer is...I wish I knew! But, I don't, nor do I think anyone else does either. Would I have ever thought we would see CSCO at 15, or EMC below 30? Naw. But does it make any difference in the end? I mean if you trade according to the market risk you would be out of those stocks during the better part of the drop, so whether they bottom at 45 or 15, it is one and the same. (That certainly doesn't mean we haven't tested the waters a time or two and took a few losses along with gains) You may not know where the bottom is, but you should pay attention to some of the signs that we are near, if not past it. The idea isn't to forecast the bottom, but to detect it. In the meantime you can make a few shillings either going short or even day trading very oversold stocks bouncing on one of these very oversold days. If your not in position to watch trades all day, it is best to stay out when the market risk is high, i.e. there are expanding numbers of lows, weak advance/decline line and when the littlest bit of bad news sends stocks reeling.
Those same factors are the same to watch for to detect the market bottom: does the up volume exceed the down volume, how about with dropping indices, is the list of stocks making new lows progressively getting smaller and smaller as the indices make deeper and deeper bottoms? How does the market react to bad news, how about the individual stocks that are effected by the bad news, how does a company of one stock react to the bad news of a competitor? It would be nice to think, "…the NASDAQ is down 60%, the worse bear market it has ever seen, and the bottom has to be soon, after all how much lower can it go?" This could be true, and should only heighten your vigilance to detect the other mentioned factors before getting fully committed.
As far as individual stocks go, the techs are a minefield at least for another couple weeks; in fact, it would be best to check any stock group for warnings before committing any long or short-term trades.
I might add that I think this is a great time to be dollar cost averaging into mutual funds. If you are so sick the market that you can do only this one thing, this is something you should do, years down the road you will be thankful.
Good Trading!!
Sam
savvy-trader.com |
