Calling an Intermediate Bottom

by: Trader Mark October 03, 2008 | about stocks: SPY    
Trader Mark

Trader Mark

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Technically, we have a very easy set up - Monday on the lows we neared S&P 1100 - yesterday we essentially tested that level. So if 1100 (slightly higher) holds, we have the makings of a potential double bottom set up and an intermediate bottom. If it breaks we have another leg down - but we do have a clear line in the sand.
On the sentiment side, I have not seen it this bad since 2002 - maybe it is worse now, I can't recall. Aside from that, the 2 biggest bulls on CNBC who have denied recession for the past year and a half finally threw in the towel and acknowledge we are going to recession this morning - Brian Wesbury and Jack Bouroudjian . Congrats, guys - denial finally turns into acceptance - a little late (S&P down nearly 25% this year).
I've never seen Cramer so negative in 10+ years.
Buffet says if we don't get the mother of all bailouts passed we are at Economic Pearl Harbor.
French Prime Minister says the world is on the edge of abyss. (Emphasis and comments in italics mine.)
  • French Prime Minister Francois Fillon said the world stood on the "edge of the abyss," gripped by a global financial crisis now threatening industry, trade and jobs worldwide. "The world is on the edge of the abyss because of an irresponsible system," Fillon said, alluding to widespread anger over past lax regulation of financial markets and excessive lending. (US investment bankers respond "We'll take that as a compliment")

  • Around the world, calls came for the House to pass the bailout bill, which would allow the Treasury to buy illiquid debt from U.S. banks to stem a spreading crisis..

The mother of all bailouts bill now looks like it will pass based on Buffett pressure - Paulson can now set a fake price that is too high for all these toxic assets and then the banks can "mark to market", the market being an arbitrary price the former head of Goldman Sachs (GS) will set (oh sure some will be auction as well I suppose)
The Federal Reserve is dropping money out of helicopters like no time in history
European leaders are meeting Saturday on the financial crisis (i.e. people are finally starting to "get it" - how bad a crisis we truly face)
  • French Prime Minister Francois Fillon, whose country is hosting an emergency summit with Italian, British and German leaders on Saturday, said only collective action could solve the financial crisis. He said he would not rule out any solution to stop any bank failing
A very bad labor report is brushed off by the market.
This type of action wants to make one bullish at least in the short run. And with the technical set up, it is a clear set up - north of 1100 (we hold on the S&P and form a double bottom) we can be bullish for a while; if 1100 is broken we have to expect another leg down.
 
But we have multiple catalysts now, at least for a short term move up - don't be surprised by some global central bank moves post-House vote and/or Sunday night or early next week

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This article has 10 comments:

  •  
    Oct 03 11:09 AM
    Nice analysis. That jobs number was horrendous though, and regardless of what the House decides, we're still headed for a recession.
    Reply | Link to Comment
  •  
    Oct 03 11:31 AM
    I agree with you that we're at an intermediate bottom.

    What I'm struggling with is trying to identify which sectors will lead this rally. Apart from Healthcare, which is becoming a little crowded.
    Reply | Link to Comment
  •  
    Oct 03 11:50 AM
    I agree on the extreme sentiment side of your argument. I've been dollar cost averaging back in every time the S&P is down more than 4%. Still at 50% cash, but down from 75% three weeks ago. My guess is that we have a classic Q4 rally, with October being the bottom. Classic seasonal pattern.
    Reply | Link to Comment
  •  
    Oct 03 04:06 PM
    Roy P. - You've posted Buy KOOL comments at the bottom of several articles today. Assume you're veerrry Long that stock.....?
    Reply | Link to Comment
  •  
    Oct 04 11:52 AM
    We will get a short bounce here off of the lows. It will not last long. Then we will get a plunge down to realistic levels above 8000 where it will try to rally. How it will do then is totaly dependent on how bad the economic conditions are then and how much firepower the big boys have left to manipulate the market further. Make no mistake, this market is going to get as ugly as a fat lady in a spandex bathing suit singing in a resteraunt gorging her face.
    Reply | Link to Comment
  •  
    Oct 04 11:58 AM
    So far the deleveraging has been orderly and quite subdued but, it will pick up and as the investors try to save what they can, it will turn into a rout. This situation is not going to be straightened out for years and if a McCain victory is given this year, then God help us all. A continuation of the same failed policies and principles will put our country and the world in dire financial straits. What were we thinking of?
    Reply | Link to Comment
  •  
    Oct 04 04:43 PM
    I cautiously tend to agree here. The sentiment could not be more awful at this time. Hard to find any positive comment today anywhere, like the end is near. Still, the feds are throwing al ton of money at the credit problems; the Europeans contemplate the same; the Brits are already more affirmative not to let banks fail; China still growing at a 10 % clip; noted also that oil was no longer leading the fall on Friday, some oil service cos ended positive;
    Great time to be a contrarian, when everything looks bleak and abysmal. Its got to be gut wrenching or it just does not work.
    Reply | Link to Comment
  •  
    Oct 04 08:05 PM
    The problem for retired folks is that it isn't about maximizing the amount that you have (e.g. look for buying opportunities), it is about maximizing the probability that you have enough (e.g. T bills.) Eventually things will go up, and in terms of a PE this mess started with a fairly priced market, but objective B calls for a holding few years of cash. And that's not about the election.
    Reply | Link to Comment
  •  
    Oct 04 08:31 PM
    with the uncertainty, how can anybody truly call any kind of bottom?
    How many have placed their bets calling it already and how many have failed on that note? I can't.. I cannot even guess when I can go back to the water let alone think about a bottom or double bottom or whatever. My best guess is when the stocks turn .. and I do believe they will, you can then call..or scream bottom.. they will be lower than this..I believe.
    I really want to think it will happen sooner the better but I am not that optimistic.. hence the moniker. Nice chart.. I need that concrete evidence just the same. Trust with confirmation.

    Reply | Link to Comment
  •  
    Oct 05 07:37 AM
    Buy puts on any sucker's rally.
    Reply | Link to Comment
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