Why are people so worried about the bubble bursting?

[juw177]

Yes, a bull market cannot last forever, but why are people worried about investing a bull market on the basis that if it goes up it is bound to come down? If you are disciplined with your stop losses, you will be out of the market when the uptrend reverses.

I remember another thread here where someone was saying dont invest in the Aussie and Toronto markets because they were going up. To me that makes no sense, or is there something I am missing here?

 

[Broadside]

How tight do you set your stop losses? A lot of people would have been out last May/June but in hindsight the smart money was buying given the performance since then. That is, how do you discriminate b/w a temporary correction and a true change of direction to a bear market?

 

[Smurf1976]

If you are disciplined with your stop losses, you will be out of the market when the uptrend reverses.

Stop losses don't necessarily work in a real crash. I'm not saying don't invest or that there will be a crash, just that stop losses aren't as safe as many think.

 

[theasxgorilla]

"The trend is your friend until the end when it bends".

Trailing stops will protect capital in open positions but you'll still give some back. If all posistions reverse then you're talking about a fairly hefty drawdown. And as Smurf says, if the bubble 'bursts' in the form of a shock event then people might be not be able to get orders filled at their stoploss levels.

 

[gfresh]

Yesterday I had 3 stops in.. only 1 got filled

From what I can see so far, you are also not protected on a big slide on open (which is often what happens if wall street goes down), unless there are buyers about. Generally most professional buyers aren't silly enough to buy into a slide.

Maybe I'm just setting them with not enough space between the trigger and the limit.

 

[professor_frink]

Yes, a bull market cannot last forever, but why are people worried about investing a bull market on the basis that if it goes up it is bound to come down? If you are disciplined with your stop losses, you will be out of the market when the uptrend reverses.

I remember another thread here where someone was saying dont invest in the Aussie and Toronto markets because they were going up. To me that makes no sense, or is there something I am missing here?

Just a comment on the part I've put in bold.

I found this a little while ago on the 87 crash-

http://www.lowrisk.com/crash/happened4.htm

The selling started right from the open. 11 of the 30 stocks in the Dow Jones Industrials did not open for the first hour due to order imbalances - there were so many sell orders they could not be matched to buy orders. With many stocks on the NYSE not trading due to order imbalances, traders turned to the futures markets to cover their positions:

If large companies that make up the DOW pretty well had no buyers and couldn't open at the normal time, what would some of the small spec stocks listed here look like on a day like that? A stop isn't going to protect you in this kind of situation if there aren't any buyers around when the stop level is breached.

 

[>Apocalypto<]

haha

with everyone talking negitive and losing hope right now.

that means the break out will come any time now!

 

[wayneL]

haha

with everyone talking negitive and losing hope right now.

that means the break out will come any time now!

These are the days of the contrarian contrarian though.

Everybody's bearish, but everybody is a contrarian, so expects the market to break out, so now everybody is bullish... so the we tank? LOL

 

[theasxgorilla]

These are the days of the contrarian contrarian though.

Everybody's bearish, but everybody is a contrarian, so expects the market to break out, so now everybody is bullish... so the we tank? LOL

LOL exactly...I see parallels to alternative music...when mums and dads are going to Marilyn Manson concerts with their kids the shock value is gone and its past being hip...whats the alternative to alternative?

 

[Nick Radge]

In 1929 it took 25 years for the market to make new highs.

In Japan, the Nikkei peaked in 1989 and is still 50% below those highs. Okay, its only been 18-years.

In 1970, the peak to eventual bottom took 4-years, but that decline was 66%. That's a lot of "buy the dip" kind of stuff. People today think about 1987being nasty. Then it took 6-years to recover, but the initial decline was only 5-months. Imagine a decline lasting 4-years? People today are concerned about a dip lasting 2-months, aka February this year. I was there in 1987. I lost double my annual salary on the opening bell.

Bottom line is that it can take a full generation for the market to regain its losses after a serious bear market. The issue is not that it will recover. I have data for the ASX going back to 1875 when the XAO was at 4.0pts. It has always recovered. The question is "how does one deal with the scenario?" Most people give it away. Rarely do they stay the long haul.

If you are young then the best advice I could offer is to trade a longer term trend following system and continue to do so until you retire, or even beyond.

 

[Woodchips]

...but why are people worried about investing a bull market on the basis that if it goes up it is bound to come down? "

For a lot of people I think the risk element makes the whole thing more enjoyable. So when most people talk about the 'bubble bursting' they really have no idea when or why it will occur, all they know is it will occur at some stage in the future. Its the most general of general statements and adds to the aura and excitement of the game.

If you are disciplined with your stop losses, you will be out of the market when the uptrend reverses.

As has already been pointed out, this doesn't necessarily hold. And its important to distinguish between a bear market and a market crash. Remember, its a game of supply and demand, there has to be someone out there who's willing to purchase your shares during the fall out. By definition, a bear market is controlled by sellers, hence during this time there is an excess supply of shares and limited buyers. But the larger the discrepancy between the two, the further and faster the value of the stock will decline. During a market crash, overwhelming numbers of sellers and very few buyers results in a huge divide between supply and demand and this can lead to double digit percentage losses in the stock market index. So if your stop orders are filled during a market crash, consider yourself very very lucky.

I remember another thread here where someone was saying don't invest in the Aussie and Toronto markets because they were going up. To me that makes no sense, or is there something I am missing here?

The comment just needs a little elaboration. During a bull market, well established companies with stable earnings are generally assigned full market value. During a bear market and especially after a market crash, most of these established companies will suffer dramatic losses in share price just like the rest. Whilst most people see doom and gloom, cunning traders capable of looking ahead will spot an opportunity to buy into a proven stock thats hugely undervalued. My grandfather was a builder who hadn't bought a single share in his life until about a week after Black Monday October 1987, at which point he decided to buy every blue chip under the sun. Granddad if you can read this mate we owe you one.

So thats why people talk so much about buying up in bear market, but thats not a reason to refrain from buying up in a bull market. In the end whether you're in a bull market or a bear market, you have to judge every stock and sector on its merits. This is because it is still possible for a stock to be under-valued in a bull market and over-valued in a bear market. But if you're going to take a punt in a bull market keep in mind that most stocks will be fully valued if not over-valued so you have to do your research to avoid getting burnt. But if you're prepared to do that there's plenty of opportunities out there.

Thats my opinion anyway.

cheers,

WC

 

[wayneL]

SP500 futures are off 19 points @7:30 am NY time... over 1%

 

[tech/a]

I agree with Nick but will add.

If your young and trading Say up to $50k then a crash which takes years to recover is no big deal.

But people who are investing 100,000s of $ and in many cases Im sure Millions in their own SMSF,and are from 40 on---the last thing they want is to get caught for a few $100K.

Age and Capital have a great deal of bearing on perception---I have found.

Wayne

Think the ASX was hit today on interest rate fears and factoring.

 

[yonnie]

we all seem to be talking about the crash, that stop losses wont work, no buyers to be found etc etc

all very negative.

but being practical I suppose, I wonder where are the solutions?!?!?

or are you going down the gurgle like everybody else?

 

[gfresh]

Some will suggest buying gold or related stocks, buying undervalued blue chips, even property. Don't forget, a share price is still mainly based upon price divided by earnings. While the price may go down, just remember the earnings don't disappear overnight if it's a well established company.

In the famous words from Hitchhickers Guide to the Galaxy - "Don't Panic"

 

[tech/a]

For me the solution is following the methodology and its numbers.
Purely because I have them.(The numbers).

Once trading results fall outside the tested results (the numbers) then i know that the system/s (methodologies) I have been trading for many years are in un tested market conditions.
As such I then exit with an obvious drawdown and either change to another methodology our re design a new method based upon the market action over the next few years or more likley BOTH.

If your a discretionary trader then you have to rely on your analysis and understand that being out of the market is a position.

 

[yonnie]

you sound quite smug tech, but your trading results might fall outside the tested results AFTER the crash.

then you want to exit and you`re looking down a deep cliff looking for a buyer

 

[Frank D]

It is a bit premature to say the market is moving into a bear market/crash, maybe in 1 years time we might come to that conclusion, this is just a retracement in the larger timeframes that happens every year, but I don’t discount it going much lower that 5949 on the SPI.

My expectation is weak to sideways until October

And even if it does support the market around secondary support zones there will be a sideways pattern for a number of weeks before any up move occurs. Once support is confirmed and then new Quarter comes around then I’ll start moving into Margin positions once again.

If you have an understanding of larger cycles then these moves are just an opportunity to buy cheaper prices once support is confirmed.

Understanding larger cycles is also an opportunity to go CASH on leververage positions, but continue to hold long term holdings regardless.

Having bigger picture analysis should be geared towards position trading stocks, holding for a number of months following dynamic cycles, when to enter, exit and go cash and repeat the process.

Around these highs was that opportunity, now it's being patient.

However, if the market does dramatically continue the sell-off then I’ll be moving into 50% leverage at yearly 50% levels, which much further down.

Short-term day trading continues with greater volatility, range trading using support and resistance. Nothing changes here.

Frank Dilernia

 

[dj_420]

It is a bit premature to say the market is moving into a bear market/crash, maybe in 1 years time we might come to that conclusion, this is just a retracement in the larger timeframes that happens every year, but I don’t discount it going much lower that 5949 on the SPI.

My expectation is weak to sideways until October

And even if it does support the market around secondary support zones there will be a sideways pattern for a number of weeks before any up move occurs. Once support is confirmed and then new Quarter comes around then I’ll start moving into Margin positions once again.

If you have an understanding of larger cycles then these moves are just an opportunity to buy cheaper prices once support is confirmed.

Understanding larger cycles is also an opportunity to go CASH on leververage positions, but continue to hold long term holdings regardless.

Having bigger picture analysis should be geared towards position trading stocks, holding for a number of months following dynamic cycles, when to enter, exit and go cash and repeat the process.

Around these highs was that opportunity, now it's being patient.

However, if the market does dramatically continue the sell-off then I’ll be moving into 50% leverage at yearly 50% levels, which much further down.

Short-term day trading continues with greater volatility, range trading using support and resistance. Nothing changes here.

Frank Dilernia

agree with that analysis

i have exited my short term holdings, one at 150% profit and one at 10% loss

the rest of my holdings are now long term and will hold them for the ride

 

[doogie_goes_off]

Fundamentally if a company you hold has repeatable earnings, low debt and a product based business, you should be watching the trends in the product supply and demand, not the market as a whole. If your portfolio is mirroring the mega-cycles of the market you may aswell give your money to AMP or some other fools to manage. Riding out a collapse is easy if you can recognise no earnings change as all that is left is the sentiment gap of the market and it will come back eventually. You can always put your money under the bed until you have grown a spine again. Or maybe that's the time to cash out and spend it!!!!