{"id":202,"date":"2008-11-17T01:44:36","date_gmt":"2008-11-17T06:44:36","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=202"},"modified":"2009-06-03T11:12:10","modified_gmt":"2009-06-03T16:12:10","slug":"my-case-for-a-market-bottom","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/my-case-for-a-market-bottom","title":{"rendered":"My Case For A Market Bottom"},"content":{"rendered":"

I think Thursday may have been the lows we may see this bear market.\u00a0 Obviously, nothing is 100%, but I’m seeing things that have made me feel a little safe to start getting long at these levels.\u00a0 And if we break these lows, I really don’t know where support is.\u00a0 But I think the risk\/reward is worth getting long at these levels.<\/p>\n

My reasons:<\/p>\n

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  1. One thing we always stress on the desk is to recognize patterns.\u00a0 On the Level 2, on the chart.\u00a0 Wherever you can spot something to gain an edge.\u00a0 I’ve seen plenty of bear and bull traps since I’ve started trading.\u00a0 If you take a look at the SPY chart over the last 6 months, you will see that the 84 area was established as a level, with 83.50 being the support from October.\u00a0 On Thursday, when the SPY broke these levels, selling accelerated.\u00a0 The SPY traded down to 82, then stopped, and reversed hard to the upside.\u00a0 This is a bear trap.\u00a0 You have to figure that people getting long after the October 10 lows were setting there stops right beneath those lows.\u00a0 So when 83.50 was breached, the stops were set off that caused people to get out of their positions.\u00a0 Aggressive traders were shorting below those lows expecting a vicious downmove.\u00a0 Instead, there was a downmove to shake out the weak hands,\u00a0 followed by a very strong upmove.\u00a0 I’ve seen patterns like this occur so much intraday.\u00a0 Clear levels are established.\u00a0 They are then violated.\u00a0 They then reverse strongly to the other direction.<\/li>\n
  2. I used to watch Fast Money religiously.\u00a0 I stopped watching because with the exception of Macke, almost everyone on the show was bullish.\u00a0 I could understand since they’re owned by GE, and I’m sure they are probably mandated to be more long than short oriented.\u00a0 But I watched the show on Thursday after the close expecting them to say that the rally was a sign of great strength, and they were all without exception advising to sell the rally.\u00a0 Another point: Nouriel Roubini, an NYU economist, who saw all this coming down the pipeline in 2006, has been on CNBC only a handful of times during the first 9 months of the year, has been on the network about 3 times since October.<\/li>\n
  3. Intel lowered its earnings guidance Wednesday night after the close.\u00a0 Inital claims came in significantly higher than expected Thursday morning.\u00a0 There hasn’t been one shred of good news coming out.\u00a0 The market isn’t making new lows on all this news.\u00a0 This is different than even a month ago, when just a rumor of something would cause a significant sell off.<\/li>\n
  4. China.\u00a0 Watch the Chinese stock market for leadership.\u00a0 In February 2007, the Chinese stock market sold off sharply in one day, causing a worldwide selloff, sending out the warning shot that not all was well in equity markets.\u00a0 When worldwide markets topped out later in the year, China was the first market to top.\u00a0 Over the last two weeks, China has showed strength, even when worldwide equity markets have shown weakness.\u00a0 This is a divergence to take note of.\u00a0 FXI has been much stronger than the SPY has been over the last 2 weeks.<\/li>\n
  5. Bill Cara<\/a> posted 2 charts where he compares this bear market to the 2 most severe bear markets since the Great Depression.\u00a0 Both the 1973-74 <\/a>bear and the 1987<\/a> bear are very correlated to this bear, and suggest that an end could be close.<\/li>\n
  6. But even if the US economy goes into a long recession, there will still be opportunity for upside in the equity markets.\u00a0 On October 13<\/a>, in his Daily Report, Bill Cara pointed out the returns during the Great Depression that equity traders were able to take advantage of.\n