Are we there yet?” is not just a line from the kids in the back of the car. This is a question that investors, speculators and professional traders are asking themselves.

tl:dr is almost.

We’re almost there – down ~25% this year (so far). I wouldn’t call it an orderly sell-off, but it also wasn’t the kind of decline associated with true crashes like the 2000 tech crash or the subprime mortgage/derivatives crisis. Still, we’re approaching levels that make my inner antagonist sit up and take notice.

For context, think about times when all the stars aligned and a major reversal was fairly obvious. Events like the tech/dotcom implosion, the October 2002 and March 2003 double bottoms, the Great Financial Crisis of late 2007/early 2008, the March 2009 low, and more recently, the 2020 pandemic. These appeared as real-time, high-probability trades if you were looking in the right place at the right time.

Consider the chart (top) by Batnick. As he rightly points out, the Nasdaq has always been higher after a year when more than 90% of the NDX 100 is trading below its 200-day moving average.

What makes it so challenging is that you often have to go down before you can go up. If you look at where those NDX signals are given, it’s before – and sometimes before – the bottom. Hence, it is more than one heads up and one down.

When markets start to diverge, I hear from people looking for suggestions for attractive entry points Picking tops and bottoms is an art when you do it for fun, but it’s a fool’s errand if you’re running money professionally.

But if you want to estimate as low as possible without trying to nail down the bottom, consider scaling back over time. Break your purchase into 5-10 or more pieces. Buy 25%, 30% less, 40% and of course +50% less. But when the rally begins,1 Continue buying by pyramiding your winning positions, adding to them as they work.

Which of these two methods do you suspect is more likely to work for you?

Genius Bottom Tick (2007-09):

 

Downstream and Upstream Purchases (2007-09):

 

There are hypothetical examples all around: Consider the Noble Absolute Return ETF (symbol: NOPE). This is a new long/short ETF that launched this week and currently has just 4 holdings: cash (84%), ProShares short Nasdaq QQQs (6%), short Cathy Wood’s ARK Innovation ETF (5%), and short the S&P500 (4 ) %).

Ask yourself if Wall Street is more likely to buy these types of products at the top of the market or after a big move and very close to the bottom?

 

 

see more:
Washout (Irrelevant Investor, September 27, 2022)

Some Thoughts on Bear Markets (Carlson, March 11, 2022)

 

in the past:
Counter trend? (August 15, 2022)

Hindsight Capital (April 27, 2022)

One-sided Market (September 29, 2021)

The end of the secular bull? Not So Fast (April 3, 2020)

Don’t panic! (with apologies to Douglas Adams) (March 9, 2020)

 

 

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1. Check out a classic volume and width thrust…

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