Give it time

My feelings basically boil down the this...give it time. I realize this sounds repetative. Whether this is a new bear or correction in a bull market (which I still think it is) the best move is to wait and sit mostly in cash.  If it's a new bear market then it's obvious as to why sitting in cash is the right thing to do.  If instead this crash turns out to be a severe correction in a bull market like last year, 1987 and 1998 then it's quite likely there will be base building required and so there's no need to pick bottoms fearing you will be left out when the turn comes. History shows you don't simply do a V bottom out of such crashes. You may point out the March 2009 as a V bottom but that was really a 3rd bottom in a complex bottoming formation (October, 08 and November 08 being the first 2 bottoms).

Take a look at last years flash crash, take a look at the 1987 crash and take a look at the 1998 crash. These crashes were all corrections in bull markets and so if that's what we have here, then those historical charts are what you should be looking at.  You will see that it took at least 2 months to make the bottoming process. Even take a look at the crash in silver this year as yet another example. Although no two bottoms look identical, they  have 1 common feature...it took time to mend the damage.

I talked about the market needing a reset a few weeks back. Well, we've reset and the bulls have a full tank of gas. By gas what I mean is fear....the unwinding of fear/skepticism is what drives a market advance and with mutual fund investors fleeing the market in a big way, the VIX hiting 49,10DMA of the put/call ratio reaching 1.25 and the 10 year bond tagging 2%; the bull-mobile's gas tank is pretty much full....the only question now is whether the car still works....if it does then we have enough gas to make new all times highs once the dust settles.

Plenty of people are bracing for a recession. I'm not going to be smart ass and sayi just because everyone's expecting one doesn't mean it can't happen. I remember in January 2008 there was plenty of recession talk and did indeed happen....a lot quicker and more severe than people expected. But unlike in early 2008, we did not have tight monetary conditions in the preceding 6 months from developed countries, there was never any investor greed, profits haven't rolled over and main street had never showed any optimism towards the economy. I'm sure bears would counter by saying that the recovery we had was never a true recovery and so this recession is simply the undoing of this government supported farce of a recovery.

You know what I say? Let the market decide who's going to be right. The market will tend to give "tells" as to what mode it's in.  I'm not talking about moving averages and fibi-nachocheese retracements. I'm talking about the way in which it advances and declines and how it deals with overbought and oversold conditions. Bull market rallies tend to be slow, steady and relentless finding a way to go higher in spite of overbought conditions....they don't give you a chance to get in unless you chase it.  Rallies within a bear market (or major correction) tend to be sloppy and volatile often done via gap ups and give you plenty of inviting dips to get in which end up being traps. Remember when I told you about how inviting that dip in early July was?

It can be very, very difficult to just sit there in cash and do nothing if you watch the market every day, every hour. The temptation to pick bottoms and do some ST trading is very high....I fight it everyday. In some selective situations it may be warranted but overall it's not....you will likely end up getting ran over or whipsawed by the volatility and headline risk.

It looks like we could get a double bottom attempt here but I don't think the market will make it so easy that it would be upward and onwards if that double bottom holds. It could last for a while but it's quite likely there would be yet another retest or lower low sometime later on, so if you want to play along better be nimble.

Sometimes I wish I could just fast forward the market by 2 or 3 months. Then again, I don't want to age so quick!