Monday, October 13, 2008

Huge bounce at 8500; Sucker rally begins; GRZZX awaits

I think we're at the bottom of the first waterfall.

The Dow Jones Industrial Average (Dow 30) closed at 8579 on Thursday and 8451 on Friday, and then rallied more than 11% today to close at 9387. This looks to me like the start of the next sucker rally in the bear market, and that puts the first big bounce less than 1% away from my bottom call (8500) made back in January.

I don't think that this is the bottom, and I don't think that the bear market is over. In fact, if my market indicators cooperate in the coming days and weeks, then my plan is to buy GRZZX at the next top (no higher than 11,000) and then ride the market down to the next low, which should be in the vicinity of 8500 or lower.

14 comments:

Dan said...

Jody,

A great post, clear and concise.

I was wondering why you removed your listed holdings to show CASH only if you plan on using GRZZX(to short the market again)?

Any idea on where you think the market is headed now that your 8500 on the DOW was fulfilled?

Thank you again!!

wooderson316 said...

For those of us new to technical analysis, could you let us know what some of the things you watch are? Maybe not pull back the curtain entirely, but just a bit?

adventurerneil said...

My gut also tells me this is a sucker's rally. But I'd like some technical indicators to back that up - any thoughts there?

Looking back to the dot-com bubble, it took just over TWO YEARS from the top (S&P 1520) to the bottom (S&P 820).

The top to the "buyback bubble" was just 1 year ago, last October... but I honestly can't see S&P being much lower than 800 in a year, if even that.

Jody said...

Let me answer the question you all have in common by asking you this: when was the last time the market fell this far this fast and then immediately turned around and started a bull run?

Dan said...

People talk about capitulation with a huge downdraft. Is that not what we saw last week?

Culver said...

Oh.. I know! I know!

It was the panic bottom in 1987, bottomed out in two months from August to October, then rebounded to a longterm bull market.

Perhaps that was a rhetorical question...

Aaron

Jody said...

The question is whether or not the bear market is over. I'm saying it isn't, but some readers think it is, meaning they think the market will just go up from here.

So I asked for an example where the market plummeted and then switched immediately to bull mode and never looked back.

Aaron: 1987 isn't it. The market hit bottom twice in October (S&P 224, 227), and then again in December (S&P 223) before starting a new uptrend. Try again!

Dan said...

Jody,
Take a look at the DOW in March of 03. That was a significant downdraft followed by an up trend. Comments?

Jody said...

No, March 2003 is not an example either. There was a decent drop in January '03, but then the market slid gradually through to March. Also notice that the market had already been at those levels in October 2002.

The last couple of weeks was not a gradual slide, and the levels we are at now were not tested earlier in this bear market.

Dan said...

Jody,
I sure hope your right about this not being the bottom - sure are alot of people thinking it was.

Dan said...

Interesting to look at October 1929 when all where saying "bottom bottom" and then what happened after that.

Jody said...

You already know what I think of the majority opinion.

wooderson316 said...

ACtually Jody, I completely agree with you. My question asking what indicators you watch was not related to the post. I'm just curios what you are looking at other than the pricing of .INX or .DJI each day.

Again, not everything b/c I know you want to get a subscription service running. But for those of us new to TA, it would be nice to be pointed in the right direction of things to look at, read, etc.

Jody said...

316: I've already talked quite a bit about well-known technical analysis tools in previous posts, but the reversals that turn bear markets into bull markets are the most complicated periods of all market phases, and timing one is as much an art form as anything. A description of one piece of what needs to happen wouldn't make much sense without the context of the whole picture.