Well, the averages are down nearly 30% from the highs they reached last October. Congratulations on your foresight!
Now what? I know that most of you are expecting prices to move a lot lower. The most optimistic bearish projection I have heard is 1050, but most are looking for a move below 1000 in the S&P.
I have a question for you. Suppose the market does get to 1050, 1000, 950, ..... What will you do then? Will you step in and buy when the S&P hits 950? At this point in time you may think you will, but you are forgetting that if the market hits 950 the financial system and the economy will look a lot worse then than it does now. The news will be really scary. Are you sure you will have the courage to go long in the face of such bad news? Remember, you don't want to buy now at S&P 1150 because you think the bad news we are reading in the papers means the market is going much lower. What will change when the market hits 950 to give you the courage to get long again?
Do you have a plan B? Suppose the market doesn't hit 950. In fact suppose, just for the sake of argument, that it makes its low at 1100 and three months later is selling at 1300 on its way to 1600. What will you do then?
Remember, you can only reap the benefits of the foresight you have shown so far by getting reinvested at a price lower than the one you sold at. Why are you confident that you will be able to do this?
(signed)
The Village Idiot
22 comments:
Great comment Carl.
I'm going to buy at 1050. Regardless of any news good or bad.
CH
CH:
Well, that's half the plan. But what if the market never gets to 1050?
Dear Carl,
Please do not discourage the bears from being bearish. You're violating Star Trek's prime directive, by interfering with the indigenous life forms' culture down on the planet. And that could muck up the efficacy of contrarian indicators.
Carl,
Love the letter. That was great! I have to confess, I'm long ... although I've been taking it on the chin recently. I've been watching the XLF. It hasn't made any new lows since July. Even with Monday's massive selloff.
Hope that doesn't mess up your bear/bull ratio! =)
cheers,
Matt
Is the market no longer a discounting mechanism? Me thinks it's already discounting the "end of the world". Is there an "end of the end of the world" yet to be discounted that I am missing? -- Jeff
Nice letter Carl, but please remember you have been doing the same thing on the way down. Oh, this low should hold or we have seen the low etc, etc ... but what happens? The market kept grinding lower. Have a stop-loss in mind and then stick to it. That's the only thing I can trade, not magazine covers or sentiment of the crowd or bullish/bearish divergences. Please show us a systme that is better than trading break-outs, or break-downs.
But on the other hand, with all of the bad news etc. out there, why hasn't the market fallen more?
The world doesn't need a bail-out, we need to have these illiquid assets on banks books listed on an exchange. Let the banks take the write-downs and then the FED can provide them with liquidity.
Thanks for your blog, Carl.
Rick B.
adam, that's hysterical. Thanks for the laugh.
Carl, good observations. I don't agree 100%, but I do agree that we're headed up for the next few+ months. In trading terms, that's all that matters.
And I'm basically a bear, longer term. Never got why people need to come onto blogs like this and go batsh*t about market calls....
Nice comment, Carl
Well, as far as i am concern, yes, i'll start building long term positions when, and only when, the SP 500 would be at hit PE historical level...between 10 and 15...
You should at least wait for the quarter results to get a sense of how the economy is really doing before make any call, SP 1600 or SP 800...that's the same...
This business should not be a mater of ideology...left, right, bears, bulls...just get the facts...
Good luck anyway
Balsamo
An object in motion remains in motion until acted on by a greater force...what will be the greater force to propel the markets higher? This bailout is nothing but pump and dump and does not address the real issues facing the American consumer. Look at the market action after 800 stocks were placed on the no short sell list...a big up move into resistance and it has been getting sold into since. Isn't it ironic that the biggest point loss in Dow and S&P history occurred after the short sell ban took place? The biggest problem is the criteia that the government is using to determine who fails and who survives during this crisis. We have been lied to repeatedly and when we stop believing that all is well we are now being led to believe that the end of the world is near to pass this bailout. Main St has been feeling the effects of this for well over a year. We have had 5 years of fictitious prosperity fueled by cheap credit and needless consumption. Many seem surprised that the markets haven't fallen farther but they seem to forget the unprecedented moves that have been made to keep it from being at its current levels. The fastest rate cuts in US history, the most liquidity put into the financial system in world history, and the the constant changing of market mechanisms have all failed to keep the market from making new lows. Sometimes we must simply realize when good money is being thrown after bad. Trickle down economics has never worked nor does trickle down bailouts. If you want to help Wall St...help Wall St. If you want to help Main St...help Main St; there is no need for an intermediary.
It's all about three things:
1.Valuations
2.Valuations
3.Valuations
I leave a question for the Perma Bullz:
Look at current PER and calfigurate your projected PER for the next quarter, is this market a buy?
Oh and by the way, there are other approaches that permit to profit from real trend changes without taking the risk of trying to catch the falling knife.
By the way, were you buying the nasdaq when it went from 5000 to 3500 (-30%) ??? What were you thinking when it get through 2000 and eventually ended at 900...
There a period in history that are horrible for investor...In 1966 you would have buy the SP at a level only breached in ...1983-84...
Balsamo
Carl, how about a point-n-figure projection from the top for the target low? I think that would go well with your Open Letter to the Bears. CF
Carl and all the BULLTARDS, of course I understand when market oversold it will get a bounce. Longer term, I'm looking this as a bear market for years to come. Yes we will bounce higher, but NOT TO YOUR IDIOT 1600 OR 1700 OK? We are going into JAPANE STYLE OF MARKET WHERE WE WILL GO NO WHERE FAST IN YEARS TO COME. It will be just bounceing between the low and myabe the 1500. And yes, you are still an IDIOT Carl and you bulltards... bull market days ARE OVER!!!
F.B.
Why will I buy when the markets fall to 800? Because that is what I (as a trader) do. I am long more than 50 contracts now, because of the indications (including the short term pessimism) of an intermediate bottom. But the valuations are terrible (and will get worse next year, which will be lucky to see fifty dollars for S&P 500 earnings), and as soon as people realize that, the march to 800 will resume (with me short again).
dear carl
im both bullish and bearish
if the spx hit 923 would i be a buyer ? yeah but what would it mean in the bigger picture ?
i exited the short side of the qqqq
the otehr day becasue i had a target down to 37 38 . i used the bounce to roll my hedge so im still short the qqqq yet i also
have several bullish trades working . it is about money management and profit more then direction . so far this market wants to move on the news which has been brought about more and more because of the bail out package . i still think this market should go higher , but as ive noted before the indicators keep giving overbought readings
even after the 777 points down the market closed overbought . now
the vix indicators did give an extreme fear oversold reading yet
the breath indicators were still overbought . there is no clear sign
giving a confimred oversold buy signal when you get 2 extremes at the same time , one being overbought from breadth and the other saying oversold from fear .
were not out of the woods .
direction doesnt matter
what matters is making money
joe
Carl, i have read your blog for a long time now, and i admire both your approach as well as your willingness to stand up and put your view on the line.
However the market has fundamentally changed and we are not going to simply bottom and then rally back up through the highs.
The whole system is bankrupt, banks, funds, companies, individuals, governments.
It will take years to recapitalise, and until that happens, and until the economy starts showing genuine long term fundamental growth, the market is just going to sit in a range and do nothing.
Sure, we will bounce off the oversold levels as soon as a sustainable low is in and then find a base. However it could easily be 2-3 years before the market starts to rally properly again.
i am gunning to go long late november whatever the price; there are people looking for s&p to 600 ofcourse over the next 2yrs..the bear mkt is just 1yr old, what is going to take it back up??? there has to be some miraculous growth invention (no less dissimilar from internet bubble of inflated money value, cheap money on credit) i guess we'll know if s&p hits 1850 but always difficult to see how at a bottom..only possibility is chinese corporates JV with US companies splashing cheap money, but still the consumer is broke and probably will take a few years to get back up.well dont bet the house just yet..
Current valuations for SPX are 1130divided by a PE estimate of 14 equals 2008 earnings at $80 for the year for the SPX. Does $80 seem like a attainable/reasonable number to everyone? Do we think that this Bear market will bottom at a PE of 14? My assumption is that this bear will bottom around 11-12 PE and earnings around $70. So the longer term target for the SPX is 770-840. Carls assumptions have a SPX target of 1300 and maybe even 1600. This assumes at current PE levels of 14 that SPX EPS will be $92 and possibly as high as $114. Over what time frame is my question? 6 months? 1year? That would be a earnings increase of 15-42% in the next 6 months to 1 year. Does Carl really think we are going to see that kind of radical earnings rebound given todays extreme financial stresses? We may be setting up for a bounce but 1300 or 1600 is not realistic in my eyes.
Hey VI,
Howzit hanging? What will I do? Well, first of all, I believe we are going to 400-450 in an ultimate climax. But, I trade based on quantitative models. When the models say buy, I buy. Sell short, I sell short. I can't see beyond tomorrow. So, I will buy when my models tell me to buy. And, while I hate to anticipate, I believe we are likely within ten percent of a temporary bottom. Hang in there Carl. I know you aren't as stupid as you have looked for the past 18 months. LOL. A joke.
11:42
Current PE is 21, ya think companies are going to report profit growth this quarter?
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