August 7, 2011- The Best Advices Found on Market Massacres

Picking tops and bottoms is a losing game, as most traders say, but then again, why are all finance and market blogs, insights talking about whether we are near one?  I guess the reason is because a lot of blood also spells a lot of opportunities.

So here are my favorite links that I’ve recently read about the markets, which I believe are good reads to guide your weekend.  

1.) Finding Key Support Levels in the Market Courtesy of Jerry Khachoyan, Corey Rosenbloom and Brian Shannon

S&P 500- Watch The Levels of : 1150, 1175,1180-1200

Corey RosenBloom’s Technical Reference Level

Jerry Khachoyan “The Armo Trader” Looks at Monthly Levels:

Brian Shannon – You don’t have to pick the turning point.  There’s a lot of indecision in the market, so having the position to stand aside is also good.

Technical analysis is not the perfect place to buy.  It’s an educated guessing game where the potential supply and demand may lie.  Market’s deeply oversold, but snap back rallies are very appealing from a sideline standpoint, but these are highly risky.  You can’t have any conviction that this market may have made a near term low.

Continue to maintain a strong defense.  Defense wins the game, whether you’re in a runaway bull market or in a market like what we have (volatile).

Watch Brian Shannon’s Video Analysis in full here:

2.) Market History Lessons

References: Barry Ritholz “Bottoms Rarely Look like Thursday’s Selloff” & Joshua Brown “Think 1938, not 2008”

Market declines rarely end with days like Thursday’s 513-point drop for the Dow.  So even if you think that we’re just suffering a mere correction within an ongoing bull market, you still should be prepared for lower prices in coming sessions.

That at least is the conclusion that emerged from my analysis of past bear market bottoms. The days on which those bear markets actually registered their final lows typically were rather uneventful — nothing like what we saw on Thursday.

It wasn’t the end of the world, just a retracement of half the gains from the 1932 lows (but not all of them) and within 13 months, the economy regained its footing into the 1940’s (with a little help from Hitler and that sonofabitch Tojo). – J. Brown

3.) Does Buffett’s opinion even matter? – He says in an interview to bet heavily against a double dip recession Watch the video link here: http://www.bloomberg.com/video/72153912/

4.) The world is falling apart and the major institutions cant just buy gold, so our paper still plays big. You may even see yield go even lower Monday or Tuesday.

If we have a massive sell off on Monday (which I hope is the case), I will leverage my kids and get long for the rally. I will trade that rally and then look for shorts (which shouldn’t be chased here). Why? Because market bottoms rarely end with days like Thursday, and I don’t think we have seen true capitulation in the market yet. A massive flush needs to occur in my opinion for me to make  long bets again for any duration more than a day or two. The trend is broken and charts have been decimated. We are back to “trading the tape” again and if you are a novice or a beginner, it’s probably a good time to take that vacation you have been thinking about.

There will be epic opportunities to make money in this market long and short in the weeks and months ahead. Have a plan. If you were knocked around like a rag doll last week shake it off and stay positive, you will get many chances going forward.

Come Monday | UpsideTrader

5.) The changing economic data make a recession less of a long shot and more of a real possibility. The standard cyclical recession causes a market correction of about eight months and a market drop of about 20 percent.

Those are just the median numbers. But they suggest that investors may get more defensive. On Monday, for instance, we cut loose our highest beta names (those with high volatility relative to the market) — selling emerging market, small-cap and technology stocks. We are now about 50 percent cash and bonds, with our equity holdings mostly value and dividend payers that tend to withstand sell-offs better than more volatile names.

The odds of a 15 to 25 percent correction are now increasingly likely. Investors should adjust their risk parameters accordingly.

Barry Ritholz  Why the wild stock ride?

6.) History teaches us that markets wobble then resume their prior trend. Major investment changes during this wobble are ill-advised.  You should have an exit strategy in place for any asset you hold, regardless of what is happening across the world. In our asset management business, we call this having a “stock prenup”: We know what will cause us to divorce any position in advance (regardless of its relationship with the pool boy)

Barry Ritholz “Anticipating Versus Reacting on Black Swans

7.) Gaining Some Perspective by Mebane Faber

As you can see, you should have about two or three days every year that are around -4 to -5% (as well as +4 to +5%).  And every few years you will have some -9 or -10% days (as well as +9 or +10%).  Since volatility tends to cluster, and that tends to happen after markets have begun declining, you usually see the most volatile days when markets are below long term moving averages.  On average about 70% of the best AND worst days occur below long term moving averages simply because markets become more volatile.

8.) Peter Brandt

What makes money long term for the big players and commercial houses is the edge they build into their trading operations. This edge is gained by approaching trading as a business with predetermined risk control protocols, statistical detachment, careful planning and execution of a logical trading plan.

______________________

Personal Commentary On Above Links::

Proactive strategies will prevail.  All of the finance bloggers and columnists above stressed the importance of understanding that the important thing for investors is not to get panicked by these episodes, and not to react with emotions. There will be opportunities that come out of these, and we’ll have to be alert with our trading systems and edges. Wild and extreme volatility is most probably going to affect everyone in the markets in the next coming weeks and months ahead. Joe “Upside Trader” wrote about the epic opportunities both on the long side and the short side.  Active traders who read the tape are the ones that’s needed in the markets right now, when everyone’s very skittish.  This is the reason why he advises others who can’t bear the volatility to sit out and have a vacation with their cash first.

Barry Ritholz, I believe, wrote a perfect ender for everything that’s happening within the markets right now.

No matter the market conditions, investing is about means, needs and risk tolerances. Finding the best way to navigate through the current market — and the future ones — begins at the most personal level, accepting that an investing strategy which others find appropriate may not be right for you. An investor like Charlotte may pay a price for her nervousness and insecurity, but it’s a price worth paying for the ability to sleep at night.

If you’re holding 50% cash and 50% stock exposures and can sleep well at night, that would be great.  If someone is holding 150% stock exposures and can still sleep well at night, that would be great too.  To each his own tolerances 🙂

– The Faceless Trader

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3 Responses to August 7, 2011- The Best Advices Found on Market Massacres

    • Jerry Khachoyan:D I’m so honored to have you visit my site:) I merely re-tweeted and summarized stuffs I’ve been learning from your end and the Stocktwits peeps. Thanks so much man.

      Like

  1. abitrade says:

    Nice post. I like the chart on QE2.

    Like

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