Time changes so quickly, what seemed almost impossible a few months back, just turned into reality and markets are no different. Who would have thought just a year back that Markets all the around world will be cut into half, who would have thought the massive destruction of personal wealth in such a short period? Sure I did warn starting Nov 07 but I myself never had thought the extent. This is one monster grueling bear. As we traveled through those passes, the picture turned clear and clear when I fist warned in Sept to stay away if Dow drops below 10,700, followed my warning for 8,000 and then my final warning to stay away should market cross 7,500 (+/- 200 points).
Personally I am very concerned. The Dow has broken the 50% principle and if that hold true (as has been several times in the past), the bottom is still far. There is no panic buying in the market rather every rally is being used as an excuse to sell.
According to Lowry’s research the buying power is multiple decades low and selling power is only slightly below the peak. Even a slight increase in selling pressure during lack of buying environment (demonstrated by 90% up day) can trigger huge sell-off easily. This has been the case, time and again. John Hussman is cautioning his readers to “Buckle-Up”. He writes- “I suspect that the markets are about to get volatile, possibly to an extent beyond what we observed in October and November“.
Dow Theory and Bearish Descending Triangle has already confirmed a bear market signal, reinforcing that a primary bear market is still in full force and gaining momentum. Investors’ sentiments are as grim as those could be. Newspapers are full of negative news. Several of Dow components are trading for almost price of a Starbucks latte. Barron argues that stocks are downright cheap. I don’t think so. Sure those are undervalued but not to the extent one would expect from such a monster bear market and probably that’s the reason for lack of demand that prices still don’t reflect appropriate premium for the risk investors need to take.
And by the way, to assess how well rounded is Barron’s round-table, check out the performance of so called investment gurus. Makes me wonder who is having the last laugh, of course it’s not the one who read it and bought the recommendations, so who?
So what’s the point of this post? The point is get ready! Get ready for “once in decades” type opportunity that will come out of this crisis. Start running your fundamental analysis, start turning over to your long term portfolio allocation models, etc. BUT DON’T JUMP into buying yet. Here at OptionPundit, I shall be introducing one or more specialist portfolios that are designed for long haul. Stay tuned.
Profitable Trading, OP