Trading the bear market

Discussion in 'Trading' started by jreynolds212, Jan 22, 2008.

  1. Ok. You may have seen my joking around posts, but now I am going to get serious and want to discuss general market action that we might come to expect over the next few months or years.

    First, lets turn back the time to 2000 and study the SPX. Below I have an equivolume chart and, as you can see, bounces were easy to predict based upon the following criteria:

    1) The RSI indicated an oversold condition.
    2) Price went way below both the Bollinger and Keltner lines.
    3) Expanded volume.

    Price would then bounce to just over the 20 day average before another good selloff would occur. The indication of the bottom was the double-bottom in 2002. These were good swings and a swing trader (today) could play a double long or double short etf and make considerable cash within a few months. Note that some of the bounces on the chart were 30% which means 60% in terms of a double long etf.

    Before I move on to the next slide, note the price of 1530.01 at the top which I will note in my next post on this issue.
  2. Now hear is the new chart and here are the things I see:

    1) Although we have had some dips the last few years, the market has never been truly oversold.

    2) Volume has steadily increased in the market to record levels. Note that September 11th was about 12.5 billion (weekly). An average week today is 15-20 billion.

    3) The buy signal used to be price htting the bottom Keltner line.

    4) Obvious head and shoulders and violation of a 3 year old trend line.

    5) Expansion in volume on the dips followed by a rebound. Price could not hold above the 20 day moving average during all of 2007.

    6) The current bear is selling down faster and harder then the 2000-2002 bear.


    I dont see a buying opportunity at this point. My target is 1150 and I would short on all rallies until that target.

    I believe there is still room to play on the short side. Im assuming that price will stop at the imaginary barricade that resides at 1150, but some of my colleagues believe it will revisit the lows of 2002.

    My guess is that tommorrow will be a down day, but the next day we will see a bounce and you short on that bounce.
  3. Oh goody, more expert analysis.