Tuesday, January 22, 2008

Are We Getting Closer To A Bottom?

The market opened sharply lower today, but quickly rebounded after the initial woosh down. Many talking heads were looking for signs of panic to signify a market bottom, and I think we saw some of that today.

Even in terrible markets like 2001-02, the market would get strong bounces after getting oversold. This year, trying to pick a bottom has been like trying to find a needle in a haystack. So while I do not want to sit here and say today was the bottom, I am seeing more and more signs that we should bottom soon. To wit:
  • The volatility index (VIX) hit its highest level today since October 2002
  • The 10-day ISE Sentiment Index hit a new record low on Friday
  • Only 16% of stocks are above their 200-day moving averages
  • There were more than 1100 new lows on the NYSE today
  • The Fed cut 75 basis points, and may cut more next week

Since we are not coming off a stock market bubble like 1999, I find it hard to believe that we will experience similar downside. More likely, this will be a run of the mill cyclical bear. As such, I think we have already experienced most of the pain (read: downside) associated with bear cycles.

So my game plan is to let the markets bounce, and use that strength to lighten up on stocks that lag. Then we will likely get some sort of retest to see if the lows hold.

AAPL reported disappointing guidance after the close, which is what they always do. This could weigh on the markets in the morning. But Asia should be higher tonight, so maybe some of that enthusiasm will act as an offset.

long AAPL

4 Comments:

At 7:56 PM, Blogger Stock Gaucho said...

Retest the lows!!! ahhhhh!!! When will all this end. I think it has to be soon because market manipulation has been going on for the past 5-7 months. However, I think either 3 months or one year.

Your thoughts?

 
At 7:42 AM, Blogger Joe said...

Hi, To all reading my comment
Author Jordan might be right with being long in AAPL altough it will see drops before it gets back to his target of $215.00. Therefore what i do in AAPL is i get my self a short 0f 120 strike expiration in Feb. And A long on $150.00 or even $170.00 (it is a less down payment) for Mar. so u will be on the swing when it swings on both sides
Joe

 
At 10:00 AM, Blogger J. Kahn said...

Gaucho,

hard to say at this point. Stocks have come down a great deal, bearish sentiment is high, and the Fed is now behind us.

So I think the worst may be over, even as it takes the mkt several months to really recover.

I would look to start adding some exposure to the mkt in here, but take some profits on a bounce. Staying nimble will help you get through this period.

 
At 10:01 AM, Blogger J. Kahn said...

Joe,

This options play sounds okay, but I would target options that have longer maturities. Try to use options that have 3-6 months until expiration.

 

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