So everyone and their mother…hint, hint LiveStock today from 1pm til who knows when, gotta cover this potentially awesome day today in all its glory…wants to know where the bottom is…and the word you must learn to recognize is C A P I T U L A T I O N.
You know I don’t believe in market guessing games–I don’t think anyone who reads or doesn’t read this blog is smart/rich enough to be able accurately quantify all the moving parts–nor buying falling knives, but I do know a little something about traders and investors psychology and capitulation is all about psychology.
Imagine for a second you’ve been a dip buyer–probly a sissy value investor/wannabe Warren Buffett “buy into fear” aka I fear how many morons out there think they’re wise/experienced/mature/disciplined enough to be part of the 10% of traders who make money instead of failing, losing $ and becoming part of the problem, not the answer–at Dow 11k, 10k, 9500, 9200, 9000, 8800…You’re down big, bigger every few hours/days and you can’t understand why the market is not bottoming like the experts/gurus/bloggers/talking heads/reason tells you it should?!?!? You keep adding to average down your cost basis so there’s still a chance you can make it back…
And there’s a ton of people doing that right now…the problem is they haven’t capitulated nor do I think they’re even close to. They haven’t thrown up their arms and sold their dip-buying-positions because they still think there’s hope.
The damn media and talking heads who say recovery in 2009 have got everybody all excited about hope and they’re responsible for making people dumber…and now poorer.
In individual stocks, falling knife chart patterns USUALLY last a longer than people expect and there’s rarely any quick rebound, if any rebound at all, but when we’re talking an entire index/market, you gotta give up on individual investor/trader psychology and focus on big issues–like the fact that the S&P 500 hit a near perfect double top from 2000, essentially meaning we ain’t breaking through 1600 anytime in the next decade. Meaning limited upside.
More importantly, the steepness of the decline mirrors the bottom in 2002, but we forget that 2002 was after big drops in 2000 and 2001, meaning all those dip buyers–yes, they were around back then too–were finally giving up…right now the dip buyers are just starting so I’d be surprised if they gave up anytime in the next few months as we’ve really only had 1 year of downside…typically, we need another 1-2 before we get any true panic. Meaning plenty of downside.
And of course, you’ve got all these messy credit swaps, derivatives and who knows what else that nobody understands well all we know is financial companies are now leveraged 20-1 down from 40-1 and it’s all coming apart.
In short, who the hell knows where the bottom is, the downside pattern is just beginning, at least historically…we might get a snapback rally, but everyone is expecting a snapback rally, which makes a snapback rally less likely which means we could/should get a serious panic that discards all historical norms and teaches everyone that technical analysis is an inexact science, especially when combined with non-transparent over-leveraged carcasses of companies.
Posted in Breakdowns, Financial Media Circus, Patience, Patterns To Avoid