Tag Archives: bear market bounce

With every new low in the VIX, I buy more puts

Posted on
7

Still in favor are Dec 2011 SPY LEAPS of various strikes, and today I’m eying market darlings Apple and Goldman. The chatter on these two being recession-proof is reaching a fever pitch, and while there is a kernel of truth to that story, their stock prices leave no room for error at these levels. Actually, even if these companies continue to prosper, their stocks will deflate as the market assigns lower multiples to the earnings of its strongest as well as weakest components.

REITS (proxy IYR) can’t hold up much longer either, their short-squeeze having run out of steam while rents start to plummet in earnest.

The question of the summer is how high this market will go while the global reprieve in mood lasts. That the NASDAQ is leading the pack reminds me of late 2007, when the market had started to roll over but the “tech horsemen” (AAPL, RIMM, AMZN, GOOG) kept on rising, against all reason. The fact that it has already reached such heights is a big warning sign. It has almost filled its October gap, a very nice target for a corrective bounce.

Above chart from google finance. BTW, check out wikinvest if you get a chance. It’s got a lot over google and yahoo’s stock pages.

Elliott Wave theory holds that corrections move in three waves (impulse moves in five), so this current push could be viewed as the C-wave in an A-B-C move. When it exhausts, a sea change may ensue, not just a minor reversal. With no fundamental support above SPX 400 (and weak support there), just such a paradigm shift is very much on the table.

Three months to go?

Posted on
8

I prefer to do the most basic charting imaginable. I just look at history and try to find times that resemble the present. In tonight’s browsing of the record of mankind’s opinion of its future, my eye zeroed in on September 2001 to March 2002. The dot marks the week of September 17, 2001:

This interim bear market bottom came 18 months after the all-time peak. Sound familiar? We had a dramatic sell-off into that bottom followed by a very sharp recovery, no doubt boosted by desperate short-covering. The bounce had covered most of its total ground within three months, but it was not until the VIX retreated to levels last seen at the top of the previous bounce that the indexes registered their final highs. This occurred after another three months of choppy trading, after which the VIX snapped right back to panic levels and stocks began to roll over into the final descent of the three-year bear market.

If this is our fate, perhaps the S&P chops its way to 1050 by September and the VIX touches 20. In that scenario, a lot of pain awaits holders of puts and inverse ETFs, and a lot of gain awaits patient buyers of the same.

I don’t feel like posting 10 charts here, but I couldn’t help but notice how many major market turns have come in September and March. These are the equinox months, and I believe we are primed to experience a collective shift at these times as a remnant of our past as farmers and hunter/gatherers whose livelihoods were very much tied to the seasons. If anyone has the time and know-how, it would be interesting to see if the numbers back up this hunch.

Prudent Bear’s David Tice sees S&P hitting 400 within the year.

Posted on
5

Bloomberg has the interview.

Tice has prepared for this bust his whole career and has been cool as a cucumber since it started. He’s an E-waver and thinks we’re on the verge of the big C-wave that destroys all hope.

It is worth noting that the S&P500 Daily Sentiment Index reached 85% recently, and this more than any other signal says to me that we have topped for now. The question now is what happens if and when we drop 50-100 S&P points: do we bounce up to a new high, bounce around a range for several weeks, or keep on going right through 666?

One could probably do worse than taking a position in BEARX right now or scaling in over the next few months.