How Do We Nail the Bottom?

Discussion in 'Trading' started by netedge, Oct 19, 2008.

  1. netedge

    netedge

    I have done some work on the past bear markets in the S&P and their eventual recoveries to get a feel for what MAY happen from here. You will see my work attached in the spreadsheet. From the summaries the typical bear market (top to bottom) lasts about 22 months, goes down about 49% on average, and recovers by about 55% within 12 months of the bottom.

    However, these numbers above are averages – not expectations. I encourage you to look at the statistics to get a better feel as the numbers vary widely in the corrections since 1929. I would be interested in your observations or further research about what is typical for the bear market and how we can begin to get comfortable when the bottom has been put in place....
     
  2. netedge

    netedge

    Here's some additiional info on the worst weeks and months in the S&P500 dating back to 1960. This should provide some additional good insight as to what is typical in a severe correction.

    Worst 20 Weekly
    ===============
    Date PctChange
    10/10/2008 -18.195%
    10/23/1987 -12.194%
    9/21/2001 -11.600%
    4/14/2000 -10.573%
    10/3/2008 -9.419%
    10/16/1987 -9.123%
    9/13/1974 -8.709%
    7/19/2002 -7.992%
    9/12/1986 -7.909%
    9/27/1974 -7.414%
    12/6/1974 -7.089%
    10/13/1989 -7.007%
    7/12/2002 -6.839%
    12/4/1987 -6.832%
    5/25/1962 -6.816%
    3/16/2001 -6.718%
    10/15/1999 -6.632%
    10/20/1978 -6.421%
    8/16/1974 -6.419%
    10/12/1979 -6.093%

    Worst 20 Monthly (Note: October is not over, yet, so its value may change)
    ================
    Date PctChange
    10/31/2008 -22.165%
    10/30/1987 -21.766%
    8/31/1998 -14.555%
    9/30/1974 -11.933%
    11/30/1973 -11.386%
    9/30/2002 -11.002%
    3/31/1980 -10.188%
    8/31/1990 -9.429%
    2/28/2001 -9.229%
    10/31/1978 -9.158%
    9/30/2008 -9.073%
    4/30/1970 -9.048%
    8/30/1974 -9.028%
    5/31/1962 -8.599%
    6/30/2008 -8.594%
    9/30/1986 -8.540%
    11/30/1987 -8.531%
    6/29/1962 -8.184%
    9/28/2001 -8.172%
    11/30/2000 -8.006%
     
  3. This is not a typical bear similar to what has accompanied past recessions. More likely a depression.

    If you're thinking "dead cat bounce", or "bear market counter", you're likely to do better.
     
  4. ess1096

    ess1096

    Trader Vic--Methods of a Wall Street Master

    The above author has excellent information on recognizing the transition from bear to bull market and vise versa, based on the theories of Robert Rhea. Not how to predict it but how to spot it when it happens.
     
  5. Brandonf

    Brandonf ET Sponsor

    I did a video the other day on the traits of most market bottoms. I think it's a good video. You will have to forgive the moving around a lot, scratching my nose all the time etc..I had just had a left side mastectomy three days prior and thus was under the influence of a good bit of morphine at the time of the video..the content is still good though.

    <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/TZ503h3VoBU&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/TZ503h3VoBU&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>
     
  6. the only way to know is thru hindsight...so your next best option is to go in with conviction and place your outs and let it ride..
     
  7. netedge

    netedge

    "This is not a typical bear similar to what has accompanied past recessions. More likely a depression.

    If you're thinking "dead cat bounce", or "bear market counter", you're likely to do better."

    Gnome, you'll see I included stats from the 1929 Great Depression and, although I agree the characteristics are different from the other recessions, the data is still quite meaningful. The first two months in 1932 after the bottom had a 90% upsurge.
     
  8. netedge

    netedge

    Agreed there is no certainty in identifying a bottom. But there are ways to improve the probabilities of being correct which is what we all do as traders is play the probabilities (our Edge so to speak). The better educated we are on the probabilities of when a bottom has been put in - the more prepared we will be to take advantage of the powerful bounce that will ensue.

    This could be the buying opportunity of the decade coming up if not more...
     
  9. Correct. But it many not be anywhere near here.
     
  10. netedge

    netedge

    Can you summarize the Trader Vic analysis as to how he confirms the bottoming formation?
     
    #10     Oct 19, 2008