Market Bottoms

[ducati916]

This is what they look like.

This is the current situation:

Probably not there yet, but, having traded through 2/3, it can be recognised (probably not the absolute bottom tick, although in 2002 I did actually buy the bottom tick only to sell later that day) quite early when it does finally arrive.


jog on
duc

 

[InsvestoBoy]

Here's a completely different take.

I saved this image from something Variant Perception did a while ago,

and I check it every month or so.

Last month, we were definitely ticking a lot of the Market Top Signs, and we had been progressively ticking more of them for the last couple of years!

Are we ticking Market Bottom Signs now?

I can see some signs from Corporate category will be appearing soon but nothing confirmed yet.

Valuations still quite high. As just one example of that, this chart from Otavio Costa at Crescat Capital shows that the recent plunge has only reduced US valuations as measured by Market Cap/GDP to the levels it was just before the GFC.

Europe and Emerging valuations are a lot better I guess.

Economic signals, a few possible ticks there but not enough.

A few signals from the Market category:
- Credit spreads are wide
- Frequent episodes of high volume selling and panic
- Volatility is high for a sustained period
- Closed end funds trade at discounts to asset value
- Market already down 20%

but in the Market category, people still love Momentum, Growth and Quality stocks! Other Market category signals around breadth and Coppock are not ticked yet.

I would say Sentiment is still quite high, people are trying to pick bottoms.

 

[IFocus]

The move down has been extremely sharp by any measure mostly driven not by fear but uncertainy IMHO.

Still early days secondary effects starting to come into view calls of depression in the US if radical action not taken from some analysis if that happens to the US it gets ugly as far as recovery goes cannot see v shape recovery no mater what..

Note Wu Han still in locked down that's the likely scenario for many areas around the world high possibility for large areas of the US.

Surely we will see a consolidation soon and then another leg down some time over the next 4 months to break the bulls to many still looking to buy for this to be any where near the bottom IMHO (again).

 

[Knobby22]

I am sort of waiting for the bulls on this site to throw in the towel, then we will be close to capitulation.

I think it will be a double bottom. You have to be careful to not get caught in the centre rise known I believe by chartists as the bum crack.

 

[kid hustlr]

Given how rapid this has all been surely it's not v shape recovery.

I agree with most that at some stage we will rally and then come back to the lows, it's at that point we will see whether the mkt can actually turn.

I'd like to see the European and australian views of these mkt cap/GDP and pe ratio equivalents as my understand was we were a lot lower before this started.

Anyone see a 1930's scenario playing out?

 

[kid hustlr]

@InsvestoBoy The market top side of that page has been going since 2015!

 

[InsvestoBoy]

I'd like to see the European and australian views of these mkt cap/GDP and pe ratio equivalents as my understand was we were a lot lower before this started.

I don't have the numbers in front of me but yes we were definitely lower and so was Europe.

A lot discussion about this over the years, mostly focused on sector composition.

Aus, Emerging and Europe indexes all more heavily weighted to traditional "value" sectors like Financials, plus more resource weighting in Aus and Emerging. So was it "justified" for US to be higher with Tech and Healthcare as bigger components? That is the question they were asking at the time.

The answer will only be evident over time, either tech can deliver on the market implied growth and RoE that it is priced for and valuation premium was justified, or it can't and it won't.

 

[kid hustlr]

Yep makes sense. Will be v v Interesting to see how the fangs come out of this as an example.

 

[InsvestoBoy]

@InsvestoBoy The market top side of that page has been going since 2015!

Definitely started to really get going after 2015, but I feel like by 2018/2019 a lot more of those boxes were getting ticket or double ticked!

What's the saying? Bottoms are an event, tops are a process...

 

[InsvestoBoy]

Here's another one I follow which I think shows no bottom yet.

NYSE Summation Index (which is approx equiv to the 19,39,1 MACD of cumulative A/D) passed from above 500 to below -500 in one brutal move.

https://www.mcoscillator.com/learning_center/kb/market_data/ratio_adjusted_summation_index/

We want to see the RASI go from an oversold reading, below -500, up to a nice strong reading well above +500, and the higher the better. Failing to reach the +500 level is like a rocket that fails to achieve escape velocity, and then falls back to Earth. It is a sign that an uptrend is not strong enough to continue, and that the recent price lows are likely to be revisted.

What we have seen is essentially the opposite of the above quote, a very overbought reading of +1000 which declined to -1000!

Sooner or later there is going to be a withdrawal of supply, short squeeze, bear market rally, whatever you want to call it. If that move can't get get back above +500, well then we know whatever swing low was formed probably will get re-tested at least.

 

[So_Cynical]

3 days of no new domestic cases in China, so what 7 weeks since they hit the panic button in early February.

7 weeks to go from sheer panic to no new cases for 3 days.
~

 

[ducati916]

So from Investoboy's list of market bottom factors, I'll pop in a number of charts etc that address some of them.

jog on
duc

 

[ducati916]

MEDIA:

The point that needs to be made is that (as per list) the media isn't that great at picking the bottom. However that needs to be distinguished from newspaper reports that actually provided very accurate reports (good news) that could and did signal the bottom was in. I have some examples that I will post later.

jog on
duc

 

[ducati916]

Some Bear Market history and data:

jog on
duc

 

[ducati916]

1987 v 2009:

Flat markets, with chop, can characterise the 'bottom'. This type of market (could) present difficulties to purely mechanical based traders? I'd be interested to hear their opinion on this (Skate, Peter, QFrog, et al).

jog on
duc

 

[ducati916]

Previous Bear Markets

1921 was deflationary
1930 was deflationary
1948 was deflationary
1982 was inflationary
1987
2002 was deflationary
2008 was deflationary
2020 is deflationary

Which suggests that what 'worked' in previous deflationary environments may well be successful again.

jog on
duc

 

[ducati916]

This is the ratio that is most accurate...it is however rather slow.

jog on
duc

 

[ducati916]

So, what is the point of all the above?

Simply that (it may be the case that) trend trading as a strategy will need to be put to one side (assuming) that trend trading does not really work in choppy markets, which, from the charts can be seen that bear markets are choppy, going (net) sideways for (?) periods of time. This is not conducive to a trend trading strategy...or is it?

If this is the case, we will then require a 'different' strategy.

jog on
duc

 

[qldfrog]

Much appreciated, especially #15
When we think of trend trading, in a choppy market, it seems bad..but the time scale should be wide enough to allow good runs for a couple of months if you have tight exits.hopefully still money to be made..
i would be more worried in such a market trying a buy and forget strategy based on fundamentals
Time will tell but yes still working on exit, stale stop loss and trying to get some return from every monthly or longuer up trend .
This coming only from a beginner naive point of view.
Many here more experienced and knowledgeable
What i like with #15 is that it matches my recent searches: we are at best back to a reasonable mean market valuation circa 2016 level but with inflation and population growth here in Australia
This is not yet a bargain imho so my very light reentering.i expect further down...we have not even really seen the financial hit on profits yet

 

[axyd]

I would say average EV/EBITDA on SP500 would be good indicator to access where we are now (Howard Marks uses something like that to access market cycle).

Howard Marks mention he build historical chart for EV/EBITDA and then looks in what percentile we are now, compared to historical values.

Another plus for this approach is that you kinda focus not on hard things like predicting the future, but on easier thing - estimating how cheap are companies now and if it would make sense to buy it.

And, because there's a little chance to catching market down exactly, so you may start investing say 20-30% right now, and the rest in the next say 6 or 12 months. Kinda like dollar-averaging, although I prefer to call it time-averaging - seems to capture the meaning better.