Has the market hit bottom or was it just a bear market bounce?
Answers
989 points
rvilmur answered one year ago …
The market is still searching for the bottom so Monday was just a beat market bounce. The VIX is now at 74.81 and rising showing that there is still great fear of a further decline. There are great bargains out there now especially in the unfairly beaten down stocks in the financial sector that do not have any or significant bad paper exposure. Among them are NLY, AHR, and NCT. High dividends and the potential for large capital gains when the financial markets stabilize, so it is time to start accumulating these types of stocks.
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167 points
theFACE answered one year ago …
Without getting TOO specific...look at most of the earnings reports out there...especially in the financial sector.
But in addition, ditto for many of the retailers (and I'm not just speaking of some of the big guys with floundering management - e.g., Sears - but literally almost regardless of the sector).
Granted, a lot of it has to do with market sentiment contributing to an already deteriorating economy; yet, aside from (waxing euphemistically) "faulty" bookkeeping, general mismanagement, poor investment choices, etc...market sentiment is what it is! There's not a whole lot of trust in our political leaders these days. Not to mention CEOs, CFOs, financial advisors, and the whole lot.
Until the current general market trend changes dramatically, I'd personally say that - with a little research - PUT options in a majority of companies (almost across the board!) could serve you well during any of these significant bear market rallies.
I'm sure that SOMEONE will be hailed as the next GURU, when they sucessfully call the bottom of the market; but having heard that the market has bottomed as "far back" as DOW 12k, 11k, 10k, etc...I certainly ain't gonna be the one to stick my neck out, and hazard a guess!...
[7,493 ... ;>) ha ha; hey, maybe I'll be the next GURU!]
2082 points
alanj answered one year ago …
The markets are so oversold right now I would not be shorting, I'd be buying instead. When the VIX is high like it is now options are very expensive. So, I would not be buying options right now. The time to buy put options is when the VIX is low and headed higher. Unless, you can find an individual stock that is at low volitility. The VIX is usually used to trade the S&P. SPY is a heavily traded S&P Index. Volitility effects the price of options. We are now probably very close to a bottom if we aren't there already. On average most bears last a year. We are there now. Most go down about 40%. We are there now.
"I just recently received the following in one of my email sources that I use. It may answer your question better than I can. "
Basing: The Final Phase of a Bear Market
October 10, 2008
Judy Alster
My colleagues at "SuperStock Investor," a related publication to RightSide, have written a comprehensive article on basing, the last phase of a bear market. It couldn't be more timely. I present the main points here for RightSide readers:
After a major reversal pattern, with the market going from a bull to a bear market, we get: a decline phase with lower highs and lower lows, a panic phase (where we almost certainly are now), and finally a bottom, or close to a bottom. Then come basing and the formation of another major reversal pattern which will break out into a new bull market.
If you look at a chart of the post-dot.com, early 2000s Dow, you'll find a base that lasted from July 2002 to June 2003, when the market traded in a range between roughly 7,500 and 8,900. Sometimes an even lower bottom can occur within the basing period, and the true bottom here came two and a half months into the base, in early October, with the Dow closing below 7,300. This bear was associated with a recession, so it took longer than usual, about a year, for prices to form the base and break out of resistance, which was 8,900 on the Dow. This suggested that the next move up could be substantial. But above-average volume is necessary to corroborate a strong bull market outlook. In this case volume was nothing special, making the outlook for the next upswing questionable and in fact, the bull market of the next five years was mediocre compared to most bulls.
The previous bear market was in 1998 but was not associated with a recession. For that reason, the recovery and basing period were very short, only about three months, compared to most real bear markets.
The bear of 1994 wasn't a true bear, although it was a tough time. The bear market of 1990-1991 was real, coming with a recession and taking over five and a half months for prices to form the base and break out of resistance. The base lasted from August to late January, with the bottom coming in October. It took three months from the bottom to break resistance, which was then 2,600 on the Dow.
Regarding today's recession-backed bear market, we see that prices peaked in October 2007. Most bear markets take about 12 months on average to find a bottom from a peak so from that perspective a bottom looks imminent. We are probably now starting to see the beginnings of the basing period. Basing periods vary widely but the average is about seven months, so we could see a breakout around next May, although because of the damage done to global economies and markets, this could take longer than usual. The amount of time it takes to break past resistance after the bottom is made also varies, but the average is about 4 months. Watch for corroborating volume.
Bases can be like diving boards: longer boards usually give a bigger the bounce, shorter ones a smaller bounce. V-shaped bottoms, although wished for, are very rare so there's almost always time to position yourself for the upturn. Buying during the late stage of the basing phase can be profitable for the risk-tolerant investor who wants to get in early on the next three-to-five-year bull market.
http://www.rightsideadvisors.com/premium/64/default.aspx?article=/tc/tcx/r sambr-dividend/20081010_022915_msg.html
3963 points
MNSL answered one year ago …
I think it is wise to stay away from option market and other derivative market in the short term, medium term It is better to stay away from highly leveraged instruments even in the long run to avoid credit mess like today.
This is the time to invest in best managed banks worldwide. Some banks in China and India are very attractive now. Some of their banks are strong compared to banks exposure to highly leverage instruments There are strong banks even in some small developed countries. I think once listed these banks, there will be good demand for their stocks.
This is also time to invest in neglected sectors and in next rotating sectors.
Next Bull Run will begin with completely different sectors
Sectors to avoid now:
Technology sector including telecom and electronics
Health sector
Entertainment sector
Auto sector
There will be fire sale in the above sectors similar to property sector and resources sector sooner than later.
You can consider investing in health sector for the long run once sector becomes undervalued. This sector has become one of the bubble sectors worldwide now.
