I am beginning to think that maybe I wasn't wrong but just just early and I have been edging back to the long side (8% long). I plan on buying on any dips but I doubt I'll ever be more than 40% long in this rally. I also got out of most of my US dollars on Monday.
I suspect that the worst of the liquidation is over for now. This means that maybe funds and institutions are still selling but perhaps slightly lower amounts (or at least not ever-increasing amounts). The market has now rallied for about 4 days straight, which I believe is the longest since late July.
I am positioning for a rally into late January to mid March timeframe that could retrace a decent part of the September-November decline. I am now looking for a rally that could take us to roughly 1000-1100 on the S&P. I also expect commodities (and TSX) to participate nicely in this rally and oil to hit $80. The Canadian dollar could get back to the upper 80s.
Risk is still high on a longer term basis, and I expect us to revisit the November lows sometime in 2009 and probably take them out. I doubt that 2009 will be as bad in the stock market as 2008, but I fear that it will much worse on Main Street Canada, and I suspect that it will be another negative year for the markets overall, especially if we rally into year end 2008.
I will probably not be posting for the next 2-3 weeks as I am taking a little time off. I had planned this back in July but when I booked it, although I predicted this to some degree, I had no idea that how exhausting this market meltdown would be.
Time to recharge the batteries. Hopefully, this will also allow me to focus on the challenges and opportunities that 2009 will bring.
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Two things I've noticed:
1. The severe bear markets of the past lasted at least twice as long as this one so far.
2. After significant sudden drops (~10%) in a severe bear, the market never matches the previous high.
Based on that:
1. The S&P won't see 1000 until the bear market is over.
2. We will see new lows.
Here is an interesting graph of previous market crashes:
http://3.bp.blogspot.com/_3-h7k_OIJk0/SSrljoGQFiI/AAAAAAAAAO0/HJtCGvmVlT8/s1600-h/four-bears-large.gif
PS: I'm happy you sold US dollars.
thanks for the great insight. I was planning on studying some of the great bears again. And while I respect history remember that there can always be exceptions as the history that we have is relatively limited (ie 5 or 10 examples).
I also think that even if November 2008 was the bottom (and I don't think it was), you are likely to get a test or two months from now before a new bull starts.
REmember there were 3 tests (July 2002, Oct 2002 and March 2003) the last time it happened and that one was not as severe as this one.
Goodbye 900 S&P. Maybe we will see you in a year? It nearly made that ~10% drop today.
Last week's rally was partially driven by anticipation of the historical year end rally. In light of today, are investors now going to give up on that?
You coming back??
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