How low can we go?

[Peds]

ditto and rebalanced bonds to equities & deployed cash into equities during lows, but now am holding off buying more because it's nuts, I know markets aren't supposed to make sense but when last week's jobless claims hit 5.245 million, raising monthly losses to 22 million, and yet Dow on friday +3%... I'm having a hard time with this...

nuts yes.
but my monthly buy will be beg of May. and will go as planned.

so you are welcome for calling the next drop haha......

[EntrepreneurMD]

ditto and rebalanced bonds to equities & deployed cash into equities during lows, but now am holding off buying more because it's nuts, I know markets aren't supposed to make sense but when last week's jobless claims hit 5.245 million, raising monthly losses to 22 million, and yet Dow on friday +3%... I'm having a hard time with this...

This is one of the advantages of being a market historian. If you look at the chart I just posted in this thread regarding market moves in a young bear, this bounce is exactly what was to be expected. Again it's seems like clockwork, like the treasury inversion signal last year. Should a prolonged recession/market correction take hold as I suspect, I am familiarizing myself with profiting in a bear market with strategies such as setting aside further cash reserves, selling currently owned long positions, inverse ETF's, stock shorts, etc. in the event historical bear chart anatomy proves accurate. Monitoring the next phase with the comments I'm seeing here...complacency. I've seen it rear itself here in a few posts. Willing to give up a few months of potential return on long positions here if I'm wrong to protect markets assets amassed over the years in a volatile market environment.

Might consider sell in May and go away (until at least election) this year.

[Tangler]

Nuts is right! Who knows what will happen. EMD likes history, well, what about LTCGM? Even the smartest folks in the world who had complicated mathematical systems (way beyond my understanding) totally goofed. If long term capital management can get it wrong, who am I to figure it out? I am happy that I put some in when it dropped a few weeks ago (rebalanced, market timing or whatever) and I do believe it will go down more but my confidence in that WAG is low. EMD, I would be careful trying to time your sell in May, and election moves etc. Those folks at LTCGM were smart rascals and they got things wrong.

[EntrepreneurMD]

Thanks Tangler saw your original post!

[Dont_know_mind]

Have you seen the curve? Massive contango in front month set to roll as people dive in bottom fishing, they will be crushed at roll even if it manages to stay flat.

Lots of people are going to be learning soon what futures, term structure, roll yield, spot, contango and backwardation are pretty soon.

I looked at the curve yesterday and have been thinking about it a bit.
The oil physical ETF's are not good with this term structure as they are based on oil futures.
This happened during the last oil selloff (2015) also. Interesting, during that the overwhelming narrative was demand going to zero based on Chinese currency devaluation but demand was actually not that affected (just some supply needed adjusting). This time the narrative is that things will bounce back, but demand is cratering and may not come back as a V.

It's incredibly tempting to buy oil with spot WTI this low, but I can't see any way to do it here that would be a high reward:risk.

I think the spot may fall further and pull down forwards. Also the super contango needs to be wrung out. The spot price is not overly optimistic but the 3 and 6 month forward price is still inflated by my reckoning.

There's not much to do for me other than wait. Things could be bottoming here and I might miss out, but I'm ok with that.

Going back to 2015, buying oil futures based ETF's at the bottom was much less profitable than one would anticipate due to contango. A year later the spot price was up 250% and the ETF was up 100% from what I recall (just my rough recollection, you would need to look that up).

I tend to think, under the right conditions, the best leverage would be shale miners going out of bankruptcy. Oil sector ETF's might be more diversified and worth a look if things get less optimistic also.

Something that I am keeping an eye on is the Saudi Arabian Riyal (SAR)-USD peg. I think this will come under pressure. If things drag out for more than 6 months that sort of thing might be the cacade event that marks a bottom.

Interesting that retail were net buyers in March, and XOM was in the top 10 buys. Still too much optimism out there I IMO.

It is a bit dangerous being short front month too as who knows what stimulus might happen. In 2005, the storage bogeyman came up and I was talking to someone and joked that the ideal storage facility for oil is a shale bed. Recently there's been the idea for the government to pay shale producers to keep the oil in the ground and take delivery at a later date. Which is basically a convoluted bail out I guess. Maybe more efficient to just nationalise the industry or give out interest free loans for 3 years.

It's interesting to compare the WTI to Brent futures curve.

I was looking at what Buffett has actually been doing since Covid-19 became an issue, from what I can gather he has:
1. Issued 1B in Euro denominated bonds @ 0% interest
2. Issued 1B in Yen denominated bonds @ 0% interest
3. Sold some airline stocks

This bounce might be a gift to get loan facilities at a low rate as debt markets become unfrozen.
I am putting together a loan refi application this weekend on real estate. Hopefully this can persist for another few weeks so I can get another application done. Hopefully, I won't need the extra loan facilities, but it's always good to have non-callable loan facilities in the event of things turning south again.

[ENT Doc]

ditto and rebalanced bonds to equities & deployed cash into equities during lows, but now am holding off buying more because it's nuts, I know markets aren't supposed to make sense but when last week's jobless claims hit 5.245 million, raising monthly losses to 22 million, and yet Dow on friday +3%... I'm having a hard time with this...

All that bad stuff is baked in. Lots of optimism lifting things. I don’t know that it’s warranted.

[Vae Victis]

Long time lurker, first time poster. I have been contributing slow and steady, buy and hold, essentially using the three fund approach. But I must say that I agree with the assessment of EntrepreneurMD and others in this thread that are expecting further losses. I held through the COVID crash but when it retraced 50% of the losses, I liquidated my equity holdings waiting for a better re-entry. I completely understand the potential for "losing" if the market moves up from here and I accept that possibility. However, I believe the odds of stocks racing back up to pre-COVID highs are very close to zero in the near term. The risk of further downside, however, is very high as we start to get a real view of the wreckage in the form of earnings and the inevitable bankruptcies that will occur as a result of this unprecedented and ongoing economic shut down. Things will not be going back to "normal" and the industries that profited from the old way of doing things are set to experience significant hardship (again IMO, I recognize the possibility that I'm off my rocker).

I know technical analysis is generally considered anathema among this crowd, but when I look at the DJI and S&P chart I see:

1) A characteristic retracement of a steep drop that is currently between the 0.50 and 0.618 Fibonacci levels, which is a classic textbook retracement as part of a continuation of a bearish trend (or bullish when in the opposite direction).
2) Falling volume on rising price - this to me is the most damning aspect of the current rally.
3) A rising wedge - bearish
4) The names of companies that are rallying do not comprise the types of names that you would see in a true recovery. They are story stocks (Zoom, Gilead, Activision, etc) or speculation names (United, Delta, Carnival, etc).

I am happy (actually hope) to be wrong, but right now I have parked a significant amount of capital waiting for a good re-entry, which I would define at the least as a retest of the recent lows.

[EntrepreneurMD]

Let's take a breather. Can't wait to try this again. Not quite as nimble though. How low can we go!

Maybe that's me in the second video...not!

https://www.youtube.com/watch?v=7irW8yS8ab8

https://www.youtube.com/watch?v=5xy8NugHzjE

[Lordosis]

Long time lurker, first time poster. I have been contributing slow and steady, buy and hold, essentially using the three fund approach. But I must say that I agree with the assessment of EntrepreneurMD and others in this thread that are expecting further losses. I held through the COVID crash but when it retraced 50% of the losses, I liquidated my equity holdings waiting for a better re-entry. I completely understand the potential for "losing" if the market moves up from here and I accept that possibility. However, I believe the odds of stocks racing back up to pre-COVID highs are very close to zero in the near term. The risk of further downside, however, is very high as we start to get a real view of the wreckage in the form of earnings and the inevitable bankruptcies that will occur as a result of this unprecedented and ongoing economic shut down. Things will not be going back to "normal" and the industries that profited from the old way of doing things are set to experience significant hardship (again IMO, I recognize the possibility that I'm off my rocker).

I know technical analysis is generally considered anathema among this crowd, but when I look at the DJI and S&P chart I see:

1) A characteristic retracement of a steep drop that is currently between the 0.50 and 0.618 Fibonacci levels, which is a classic textbook retracement as part of a continuation of a bearish trend (or bullish when in the opposite direction).
2) Falling volume on rising price - this to me is the most damning aspect of the current rally.
3) A rising wedge - bearish
4) The names of companies that are rallying do not comprise the types of names that you would see in a true recovery. They are story stocks (Zoom, Gilead, Activision, etc) or speculation names (United, Delta, Carnival, etc).

I am happy (actually hope) to be wrong, but right now I have parked a significant amount of capital waiting for a good re-entry, which I would define at the least as a retest of the recent lows.

I think the danger in that strategy is knowing when to get back in. I never would have guess that it would rally this much. At what point do you get FOMO and get back in? If it does drop how low do you let it go? If you do not have solid answers to those questions then you are playing by emotions and that can really get you in trouble.

[Vae Victis]

I think the danger in that strategy is knowing when to get back in. I never would have guess that it would rally this much. At what point do you get FOMO and get back in? If it does drop how low do you let it go? If you do not have solid answers to those questions then you are playing by emotions and that can really get you in trouble.

I agree with this being the major risk - as has been said many times on this forum about timing the market, you have to be right twice. If indeed I was right to sell, then I have to be right again on when to buy back in. I do have a rough plan of when I would FOMO back in but frankly I can't see those criteria being met anytime soon. As for when to start buying to the downside, I will begin to phase in once we reach the recent lows with a DCA approach.

[Tim]

I think the danger in that strategy is knowing when to get back in. I never would have guess that it would rally this much. At what point do you get FOMO and get back in? If it does drop how low do you let it go? If you do not have solid answers to those questions then you are playing by emotions and that can really get you in trouble.

To trade this, one actually needs to have rules, two or more conditions (indicator and confirmation) that trigger entry and exit as well.
I would love to hear someone define how they actually are going to trade this. Position size, entry size and how they scale all the way in and all the way out.
Yes, its and IPS that you follow. Yes, follow your rules. The previous four observations are simply that, observations. If you think behavioral finance is a challenge for a long term investor, it is exponentially greater for a trader.
http://traderfeed.blogspot.com/

[EntrepreneurMD]

I think the danger in that strategy is knowing when to get back in. I never would have guess that it would rally this much. At what point do you get FOMO and get back in? If it does drop how low do you let it go? If you do not have solid answers to those questions then you are playing by emotions and that can really get you in trouble.

Whippersnapper, if you're in a state of FOMO market is still inflated, look at the emotions chart. FOMO is a state of mass greed, and you know Warren doesn't buy into mass greed for good reason. You'd be itching to buy when the institutions may pull the rug out from under you. The herd needs to go thru panic, fear, anxiety, anger and to depression when it's time for Warren to buy big (max. fear not FOMO).

Last year you recall it was when so many were basking in a state of post-inversion delusional melt-up when I said meh, Dow 15K probably. I obviously didn't FOMO with the retail investor masses into the 2019 melt-up. What you keep calling psychic calls is really concrete market insight while absorbing the data of the day. When I jump, gravity pulls me down every single time! What about all the money infused into the economy some ask? How quickly we forget what they infused in 2007-2009. This time, the recession is global. Which Country is spared? It appears on the surface that the Feds injected massive infusion of CARES cash, but in the context of the global challenge, are we really bringing a knife to a gunfight because that's all we have? Maybe or maybe not. Time for FOMO or caution? So what if I sell in May and go away. If I'm wrong, coming back a few months later won't break me. If the data proves worse, a few month later can be disastrous, because it's escalator up, elevator down...and I get claustrophobic in elevators so I avoid them. Ha!

Your perspective as a young'un with a longer horizon and with little in the markets and little to lose is different than one who has a career on the line in the markets. That's been your justification for just accepting the risk into the market nosedive recent months. Better to learn before the future pain of a long, protracted market melt-down of dry gunpowder evaporating in the wind, even if it doesn't happen this time.

[Dont_know_mind]

Interesting day today.
I visited a loan manager for a bank I’ve had a reasonable amount of business with for a few years. They told me they could only increase my loan facility by about half of what I would have been able to get without hassle 3 months ago. On top of that I have to tell them exactly what the property equity release will be used for, that it has to be used for purchase of further property and what the business plan is etc. and this is with a residential top up loan facility. What a headache. I can’t wait to see what the loan conditions for releasing equity in my commercial real estate is.

Lesson learnt, don’t take loan facilities for granted during good time’s and lock them in before a crisis.

On the Stockmarket. I think anything can happen. The range of possible values is large here. Like I said earlier in this or another thread, I see a 24 month possible range of SP500 from 999 to 4000 is possible. That is the actual possible range to me, so when the realised volatility is near that, I’m not surprised or perturbed.

I tend to think we will visit 999 before 4000, but if we go straight to 4000, I am ok with that. I definitely would be better off with the latter. I think there is a chance that things may bounce back and get into a truly melt up phase with all the central bank liquidity released.

I am still 90% risk assets, 10% cash. Waiting for a time to deploy the 10% cash and deploy leverage. If that time doesn’t come, the 90% in risk does pretty well.

I do love watching oil during a period like this. I have a tiny position but it just is fascinating to watch when there’s this type of action in the markets. We live in interesting times. I wish I didn’t have a day job during times like this so I could spend more time reading, watching and pondering that very deep question “how to catch a falling knife”

[Hatton]

I just read this thread today. Pretty interesting to read after the market swings. For those of you who sold everything and are waiting to get back in what will be your signal? I saw people do this in 2000 and 2008 and none of them got back in properly. They missed the really big rallies and I am sure set back their retirement goals by years. I am now retired with a large enough cash position to not feel any panic whatsoever. I have been exchanging positions to gather up some tax loss harvests only. For many of you this may be your initiation into wide swings and potentially big losses. It is just part of investing. Try not to panic. Lesson to learn the market can go down. We were all spoiled by an 11 year bull market.

[Tim]

We are all spoiled with increasing opportunities for personal capital opportunities in every section of the economy. Returns on personal and financial capital have been rolling along. What next? No one knows. Enjoy the ride.