Invite ye felawes and frendes desirous in gold to enter the gates of Shrewd'm, for they will thanke ye later.
- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 2
I am trying to reconcile what Zeelotes and Jim are saying about bear markets.
Zeelotes: Most money (at least by him) is made in bear markets as the drop is far sharper than the rise in a bull market.
Jim: When a bear market starts you don't have to hurry, have a lot of time, as even after 2-3 months the drop is just 10%.
(Apologies on both if I quote incorrectly, but that's how I understand them.)
So a bear for several months is only "crawling" but after those months it's quite abruptly and sharply going down? Psychologically seen as kind of: After years of a bull market it takes a long time until market participants are realising it really is over, but then this realisation gains more and more momentum, leading from scepticism over "hm, maybe..." to outright panic?
So that one could use this slowly changing sentiment to time buying inverse ETF's or Index Puts?
No. of Recommendations: 4
So that one could use this slowly changing sentiment to time buying inverse ETF's or Index Puts?
You could, but there is a heighten risk there. You don't need to make money in both bear and bull markets. Sitting out bear markets is good enough.
I follow one advisor who specializes in CEFs & ETFs, who also is quick to grab inverse ETFs when the market has a blip down. So far, in the last 2 years every one of those has been a loser.
No. of Recommendations: 9
Said, it looks like you're trying to stuff things into a box that just don't fit in a box.
Zee's strategies - there are multiple, and layered - fit within a general approach of staying safely invested a significant part of the time, but contrarily jumping on market transitional opportunities "at extremes". Extremes of what? Extremes of sentiment at both tops and bottom points - things like a day where 90% of stocks are below 5 or 20 day moving averages (bottom-like), or an index has hit new highs 5 out of 7 days while less than half of its stocks are above short term moving averages. There are many detailed proprietary data-driven strategies he has developed and his followers use.
Mungo's is his. He has tried to point people to contrarian bullish opportunities at bottom signals, driven by similar sentiment indicators - two phrases: it's so bad it's good, and, many of the best trades at bottoms appear absolutely crazy at the time.
As well, bear markets don't behave the same way, obviously. You get the 2020 fire in a crowded emergency room. You get Q4 2018. You get the slow 2007 into 2008 and 09, and you get the "wow the Fed is really cutting interest rates?!" evacuation 2022. Some slow, some fast panics.
As far as using inverse ETFs - in any event they CAN be very lucrative at strong/obvious market bottoms and tops but as I'm sure you have read they are NOT appropriate as a "core" holding for any serious length of time. 2x or 3x the volatility, and bearish ones decay over time.
No. of Recommendations: 4
Said, it looks like you're trying to stuff things into a box that just don't fit in a box.
That might very well be the case.
While I am more or less familiar with Jim's thinking, Zee's strategies and concepts are absolutely new for me. MI investing is not totally new for me. In 2000 I developed my own MI strategy which I used until 2008. But MI can have very different faces and my strategy had absolutely nothing to do with all those technical indicators used here, did not use even one of them, only company data.
So trying to learn a little from Zee is having to deal with a totally alien world, is very hard and confusing for me. What it does: It leads to me thinking in this or that direction, but as you point out that thinking might be very confused. A good example might be the post about my interpretation of Grantham's PC statistics. I wouldn't be surprised if you or others here find that interpretation laughable :-)
inverse ETFs.......NOT appropriate as a "core" holding for any serious length of time. 2x or 3x the volatility, and bearish ones decay over time.
Thanks for the warning! Yes, I experienced that "decay over time" myself when I bought them years ago as hedge against a crash. The crash never came, and the insurance against it was very expensive.
No. of Recommendations: 8
Your openness is admirable about "Zee's strategies and concepts are absolutely new for me."
They no longer have anything at all to do with individual company fundamentals and screening. If you were last in MI going into the GFC, yeah things have changed.
Really, these approaches sum up to, is it reasonably safe to expect positive returns from stocks in general (or specific asset classes) in the near term based on "listening to the railroad tracks" of market data showing what the big investors are up to - interest rates, breadth, volume, overall P/E, trend, price relative to trend, etc.
And they need a significant amount of market technicals data, not individual stock data. That said, there are enough free or reasonable-cost data sources out there that can be put into Excel/Sheets/Numbers for straightforward calculations to be built off them. All the indicators do is add up to a bullish environment or a bearish environment. That's as far as I've been willing to take it all these years. It's a great mechanical stoplight approach if they're used in combination.
The next level above all that is picking which assets to be long in during bullish periods and which to be short in during bearish. And that's where I drew the line, just speaking for myself - I have spent too much time already working with data, building spreadsheets, carefully scrutinizing market data because I'm too close to retirement to suffer through another '08. Hand up, I use the signals these guys developed back then as well as some others I've learned about since and feel blessed they took the time to backtest them and share them. If I had used them in 08 with my whole portfolio at the time, I'd be retired already - would have turned a 32% loss into about a 15% loss.
No. of Recommendations: 3
They no longer have anything at all to do with individual company fundamentals and screening. If you were last in MI going into the GFC, yeah things have changed.
I started with MI in the 90's (was not called MI then or I didn't know it). As a computer guy "naturally" with neural networks and with statistics. That was a lot of hours and work but utterly failed, was even on paper never successful enough to invest real $. From 2000 on a strategy I developed which, yes, used individual company fundamentals was super-successful, on average >30% CAGR.
If I had used them in 08 with my whole portfolio at the time, I'd be retired already - would have turned a 32% loss into about a 15% loss.
I can relate to that. It's why I abandoned MI and my for 7 years so successful strategy: Because exactly the same happened to me, wiping out a good part of the gains of the previous years, as my strategy picked the very worst loser, Homebuilders+Lenders of last resort, companies which partly fell 70% or 80% - or did cease to exist.
No. of Recommendations: 17
To a large extent I was commenting on market tops, the end of a bull which is the start of the bear. They tend to be pretty rounded and gradual overall (though a bit squiggly/jagged short term). Bull market euphoria fades only slowly as many people are habituated to buying on every dip.
Bear market bottoms, as Zeelotes mentions, tend to be pointy: sharp drop, and (when it comes) sharp rebound.
So: beginning gradual, ending sudden.
The most amazing and profitable observation I've seen (not my observation, just repeating it) is that once a pointy bear market bottom has taken place the stuff that zooms the most is generally the very worst crappy stock portfolio imaginable: the things that you would normally want to be short. If (if) you can spot a sharp market bottom, for a little while you want to be long whatever junk you can find: some people look for the low-quality stuff that fell the most on the way down, which works, but I also like looking for those with highest return (biggest bounce so far) since the pointy recent low. i.e., two or three weeks into the rebound, you want to be long the stuff with the highest 2-3 week returns. e.g., if the bear market had a concentration in the financial sector, you want to be long financials after the bottom, but not for too long, their rally will tend to peter out after 2-3 months and you want to rotate into better quality at that point.
Jim
No. of Recommendations: 7
Jim wrote:
To a large extent I was commenting on market tops, the end of a bull which is the start of the bear. They tend to be pretty rounded and gradual overall (though a bit squiggly/jagged short term). Bull market euphoria fades only slowly as many people are habituated to buying on every dip.Bear market bottoms, as Zeelotes mentions, tend to be pointy: sharp drop, and (when it comes) sharp rebound.A method I use to demonstrate this is based on using 20% Peak-Trough analysis based on close prices. This finds all major market peaks and all major market bottoms. I also remove 20% moves within a bear market and only show the highest high prior to the bear market and the absolute final bottom at the end of the bear market.
I find the # of market days that are within x% of each peak and each trough. The table that follows is based on 5% to 30%. The basic point should be obvious. Bear market bottoms tend to be more volatile and dramatic, whereas market peaks are slow in arriving and being sure it is truly a bear market in motion. Here are a few thoughts that flow from this study. NDX100 is from 1983 to present, whereas the S&P 500 is from 1928 to present.
1. The days within 5% of a bottom are a fraction of the days within 5% of a market peak. The latter is about five times larger.
2. The days within 30% on either side are three times larger for peaks than for bottoms.
NDX100 S&P 500
Total Before After Total Before After
95% 105% Top 40 21 21 71 36 36
Bottom 6 3 3 13 6 8
90% 110% Top 93 51 44 204 103 102
Bottom 22 12 11 38 19 20
85% 115% Top 173 102 72 326 168 159
Bottom 43 21 23 74 31 44
80% 120% Top 265 152 114 408 210 199
Bottom 66 31 37 99 42 58
75% 125% Top 337 196 142 471 238 234
Bottom 84 37 48 114 51 64
70% 130% Top 378 216 163 496 250 247
Bottom 101 48 54 123 58 66
Here is an illustration of this with the details for the Nasdaq 100:
P-T NDX100 90% 110% 400 100 Days Within
Date Price At Position Range Before After Total Before After
6/16/1983 163.71 Top $147.34 5/12/1982 7/20/1984 72 27 46
7/24/1984 98.96 Bottom $108.86 4/15/1984 11/1/1984 67 52 15
10/6/1987 214.03 Top $192.63 9/1/1986 11/9/1988 67 60 8
10/28/1987 126.25 Bottom $138.88 7/20/1987 2/5/1988 10 3 8
7/16/1990 246.82 Top $222.14 6/11/1989 8/20/1991 125 103 23
10/12/1990 162.55 Bottom $178.81 7/4/1990 1/20/1991 26 9 18
7/21/1998 1,485.97 Top $1,337.37 6/16/1997 8/25/1999 60 14 47
10/8/1998 1,063.27 Bottom $1,169.60 6/30/1998 1/16/1999 3 3 1
3/24/2000 4,816.35 Top $4,334.72 2/18/1999 4/28/2001 17 13 5
10/8/2002 795.25 Bottom $874.78 6/30/2002 1/16/2003 16 14 3
10/31/2007 2,239.23 Top $2,015.31 9/26/2006 12/4/2008 88 41 48
11/21/2008 1,018.86 Bottom $1,120.75 8/13/2008 3/1/2009 5 3 3
10/1/2018 7,700.56 Top $6,930.50 8/27/2017 11/5/2019 240 106 135
12/24/2018 5,895.12 Bottom $6,484.63 9/15/2018 4/3/2019 12 5 8
2/19/2020 9,736.57 Top $8,762.91 1/15/2019 3/25/2021 72 35 38
3/23/2020 6,771.91 Bottom $7,449.10 12/14/2019 7/1/2020 6 6 1
11/22/2021 16,764.86 Top $15,088.37 10/18/2020 12/27/2022 100 59 42
10/13/2022 10,440.64 Bottom $11,484.70 7/5/2022 1/21/2023 49 11 39
Top 93 51 44
Bottom 22 12 11
Jim's conclusion on how best to trade a major bottom I'd agree with and many years ago I proved this out with a whole slew of posts on the subject.
