Loosen Your Stops, Tighten Your Bowels

My sense is that most people continue to misread and misunderstand the indicators because they are only looking at the patterns of the last 5 years. In great bear markets the behavior and parameters of these indicators are different. Lower for longer. Much longer.

Here are several excerpted comments from the message board at Capitalstool.com today, along with my thoughts.

roxy,Jul 12 2008, 12:31 AM

The number of stocks below 200 DMA bottomed few days ago. There is a hidden accumulation going on.

I disagree. I think it’s distribution. A consolidation of the downtrend. A sideways up phase. 6 month cycle indicators are nowhere near a bottom.

Brisbane Bear,Jul 12 2008, 01:45 AM

Doc,

I think this big down move caught more people by surprise than any down move in a long time.

I certainly wasn’t surprised by this down move. Neither were the analysts that I work with and others whom I respect. It was clearly telegraphed and within a few days of the top the indicators were unequivocal. No technical analysts worth their salt should have missed this. I would hope that my subscribers felt well prepared and took part in the decline. I was most shocked about Russell. I lost all respect for him as a result of his miscall.

alceringa,Jul 12 2008, 05:17 AM All that is needed to solve the Freddie/Fanron problem is some clever financial engineering, which Paulsen, et al are perfectly capable of doing.

No liabilities need go on Uncle Sam’s balance sheet.

After all, consider the future liablity of Medicare.

Where is that on Uncle Sam’s balance sheet?

After all, consder the future liability of Social Security.

Where is that on Uncle Sam’s balance sheet?

Someone clean the mirrors and get the smoker going. 😮

Move along people, nothing to see here.

I think that this will collapse the bond market regardless of whether they actually put it on the books. The implied guarantee is too well understood by the financial community. The govt. can always change its obligations on SS and Medicare. Those are not contractual. they are legislative, and more importantly, they are not owed to Wall Street, its friends, and even more, to foreign central banks. FCBs hold 60% of the debt of Fannie and Freddie. Wall Street expects the government to stand behind Fannie and Freddie, and it is beginning to believe, rightly I think, that this will break the finances of the USG. In fact they are already broken, and the point of recognition is here and now. I look for interest rates on USG securities to be much higher a year from now, perhaps unimaginably so.

Jetlag,Jul 12 2008, 05:35 AM

It’s looks like we’re getting very close but not exactly there yet. If we had a black candle stuck up there at least at 30 on the vix I’d be more sure.

Apart from betting on a crash it’s probably a good idea to cover your shorts by now. Don’t know about going long.

I disagree again. This is the time to “let your profits run.” Tighten your bowels and loosen your stops! If they take a little back after the bottom turns up so what! I wouldn’t want to miss the potential of what may occur on the downside. Swing traders who shorted the 6 month cycle turn in May should stay the course. I made the mistake of getting shaken out of short positions in June because of a little rally. I reshorted other things within a few days and they have done well indeed, but I missed out on huge profits on my original short recommendations made on May 19 and immediately thereafter. I let my fear of giving back profit get the better of me. Those of you who ignored my actions in removing those ETFs like IAI, KCE, IYR, IYZ, and XHB from the chart pick list at the time have made an absolute killing. Stay the course I say!

Obviously, if your focus is shorter term and you have entries lower down, you don’t want to allow profits to turn into losses, so shorter term traders have to use different parameters. I would let support and resistance be my guide with plenty of play to allow for false breakouts. But as an intermediate trader I don’t want to try and anticipate a bottom here. I want this to be good to the last drop.

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