Monday, October 6, 2008

Now What?

After one of the craziest days in recent times (TSX down 1000+ twice, Dow down 800; both cut losses in half), it is time to revisit previous posts with the interest not of gloating but looking forward: 1) I said this on Sept 6th after making a similar warning on Aug 8th:

Cash is king here for all but experienced investors (who can short carefully). Stay out of debt. I saw (and still see) a move to about S&P 1078-1090 (Dow 9Kish?) for this downleg which should last into November, around the time that Barack Obama (or John McCain) becomes the new President.
I added to this on Sept 25th:

I think that there is now a risk that if the market is not saved here, that we go lower than I initially thought (S&P 1080) to S&P 990. This would translate in to roughly 9000 on the Dow.
What do I think now, after we hit 1007 S&P (not quite yet 9K on the Dow): CLOSE ENOUGH FOR NOW.

Barring the low probability (but definitely a possibility here) of a full 1929 or 1987 crash, we may get a bounce.
This is not a bottom call. We could still crash or we could rally huge for a few weeks or even months. Very tough to call here.

I am now almost totally in cash (sold off remaining shorts this morning; have a few puts left).

If we had a sharp rally here and certain things that I look for don't "confirm" that rally, then I would even consider shorting again. If things did "confirm", then I would get more invested.

I may even take a small (10-15%) dip in the ocean if I feel like it with tight stops.

At S&P 1007, we were about 36% off the highs. I think we ultimately go lower, but at least at 36% you have finally passed a garden variety bear market.

A severe bear market (1907, 1937, 1973, 2003, etc...) often gets you to 49%. My gut tells me that is where we are ultimately heading to 49% but that could be next week, next month, next year. Not quite sure. My gut also tells me that today was not a bottom and we go lower either in October or November but I'm not quite sure here.

Even in vicious bear markets, you often get multi-month huge bear market rallies (example September 2001 to January 2002) before making new lows. I suspect that we are getting near to a multi-month rally but first we likely have to retest 1007 (could be tomorrow, this week, this month or in Nov/Dec) and not break it.

If we retest and break, then we go to 777ish S&P (which could be via a crash).

Stay tuned...

2) Fed surprise cut

I speculated last week that it would be either on Monday or Thursday. Clearly, it was not Monday. I speculated that they want an up day first (I wrote the post when the market was up huge pre House vote on Friday). Today might have qualified since the market rallied in the last hour....Therefore, Tuesday is fair game IMHO. I would expect 75 points at least since the market already expects 50. In theory, the market should rally but some of that rally likely happened between 2:48pm and 4pm today....

1 comment:

jen said...

Australia cut rates by 1% last night, no?

I can't imagine the rest of the crowd will be far behind. You may be right about the US waiting for an up day first, in order to not look too desperate.

They're rapidly running out of bullets- they can't go much lower. If a rate cut doesn't "work", all bets are off, IMHO. You