Sunday, November 23, 2008

Downward Acceleration

The S&P 500 index has actually been accelerating downwards since late October.

At the same time, investors are becoming pessimistic again by more than one measure, and this can fuel an eventual short-to-medium-term rally. As I've said before, this is still a bear market, and I'm only interested in buying a bear fund (GRZZX) at the end of a sucker rally when optimism is high. So, for the time being I'm still sitting on the sidelines.

6 comments:

tomflint said...

Jody - when did you go to cash? Scanning your recent blogs it seems that you have been in cash for a while for which you deserve kudos and applause (as well as monetary gain!). I "knew" the market was heading lower in Dec07-Jan08, but I thought it will be only a correction of less than 20%, so I sold a little, but I still hold about 50/50 in equities/fixed. I like you chart - it clearly shows the downward the acceleration. That is good, in a way, because the downward velocity is increasing and therefore the end of this leg, is getting closer.

-Tom

Jody said...

Tom,

I've been in either cash or bear funds (SDS) since January, when I predicted that the market would fall to Dow 8500/ S&P 940.

I agree with your positive outlook - the faster and steeper the market falls now, the sooner I will be able to buy stocks again, and the better the dividend yields will be.

tomflint said...

Jody - you made an excellent forecast 10 month ago! I just hope that we will not meet now your downside of S&P 460/6% yield. (Your 460 is very close to my "3 sigma" possible low point of ~450 on S&P.)
- Tom

Anonymous said...

Was today a sucker rally? Seems like they rallied on hope, not financial results. Housing was even worse than expected. Tomorrow could be down day.

adventurerneil said...

Doesn't the logarithmic scale of the graph have something to do with making it look like it's accelerating downward? On an absolute price chart, it looks like the falling has actually slowed a bit since September. (http://preview.tinyurl.com/sandpsept)

I'm not that experienced at technical analysis, so I don't know the when/why behind using different scales. Feel free to educate me.

-Neil

Jody said...

Adventurerneil:

On a logarithmic scale, if the market goes down 3% per day, it will look linear. The fact that it's curving downwards means it is (was) falling at a progressively higher percentage rate over time.

On a linear scale, a constant percentage drop will look like it's slowing down, because technically it would never reach zero.

Anonymous:

Useful sucker rallies are more gradual and take longer than two days - that makes them easier to time. This two-day surge is tricky, because it will probably come to an end quickly and be followed by another mild slump. It would be great if the rally continued for a while, setting up some optimism and a predictable short-term top, but I'm not counting on it.