Thursday, August 27, 2015

Another V Bottom?

It would be quite shocking to this trader if we got an October 2014 V bounce.  The market participants have seen so many of those V bottoms that many jump in at the first sign of a bounce.  That is why you got so many fake out V bottoms in the first 6 months of the year.  The market lacked buying power to extend the V bounces beyond the first few days.

The market will do what it wants to do, regardless of news.  Unless it is something central bank related, the news is meaningless.  And China's central bank is not going to cause a sustained bounce unless they do something totally unexpected like a QE and buy US Treasuries with it.  In fact, there are rumors that they are doing the opposite and selling Treasuries.

By the way, the VIX got as high as 31 in October 2014.  This past Monday, VIX hit a high of 53, and has sustained levels above 30 for the past 2 days despite rally attempts.  This is not the same market.  This selloff is much more insidious and something that will take time to resolve itself.  It doesn't help that all those corporate buybacks couldn't get this market higher.  The value buyers will not step in at these levels because we are still overvalued.  Low single digit corporate profit growth with P/E of 18 will not get value buyers excited.

The best thing this market has going for it is that there are a bunch of bears out there, but it would only be shocking if there weren't after such a fall over the past 5 days.  This is a counter trend trader's market.  Basic strategy is this:  Sell after stocks rally for 3 days.  And buy after they selloff for 2 days.


shzhning said...

what about intraday trading? anything particular you look for to jump in an intraday trade?


Market Owl said...

I only like intraday trading if we are volatile, basic strategy after a sharp drop is to short big gap ups and buy big gap downs. Basic stuff.