Stocks Bounce

Well here we have it.  I wrote last Friday in The Sky Is Falling! that stocks were oversold and due to bounce within a couple of days.  I believe the bottom of this selloff was hit just a couple of hours ago, at around 12:25.

Is the selling over?  Yes, for now.  As I discussed in greater depth a few days earlier in What’s Up With Stocks?, stocks are zig-zagging their way lower in dollar terms.  This was the bottom of one of those zags.

But I believe the bigger picture is something technicians used to quaintly call a “bear market”. As we’ve discussed before, here at Financology we use the traditional meaning of the term to refer to a market that declines over an extended period of time.  Bear markets are typically composed of a series of selloffs  punctuated by intervening rallies.  We’ve just concluded one such selloff.

 

9 thoughts on “Stocks Bounce

  1. Bill Terrell says:

    “I believe the bottom of this selloff was hit just a couple of hours ago, at around 12:25.”

    I’m quoting my above January 24 comment now because I just heard a Bloomberg reporter declare that it looks like “the bottom was on January 24”.

    Well, you heard it here first.

    And within hours, not weeks.

    Not only that, but Financology alerted readers to its likelihood two trading days before it even happened. I have to emphasize though that we can truly only call it “a” bottom … not “the” bottom. It’s only the latter if stocks never again hit a lower level. Suffice it to say I think lower levels are not only possible, but probable.

  2. Peter Fife says:

    I’m sorry Bill, but over the years I’ve read many of your posts. As a result, I have come to appreciate how exacting and precise you are, in your choice of terminology.

    I just looked at a 1 minute chart of SPX for January 24, and a low was hit not “at around 12:25”, but precisely at 12:25pm. That is amazing; I don’t know how you made that call but I sure would like to know.

    1. Bill Terrell says:

      Thanks Pete … I don’t mean to give the impression this site is about short term trading. 99% of the time I have no clue what direction the markets will take on a time scale of days, let alone hours or minutes. They’re almost completely random in the short term, being buffeted about by forces that are almost always nearly equal and vulnerable to impulses from news flow. Just once in a while the forces on one side clearly overwhelm the other enough that a clear picture snaps into focus.

      Rather the bigger point is how utterly awful mainstream financial reporting is. Bloomberg was telling its viewers that the bottom happened on January 24, giving them an implicit all-clear signal to buy stocks … on February 10! Far too late to be of any use whatsoever. At minimum, weeks later and several percent higher than an independent financial guy on the internet. At the same time, Bloomberg was far too early … as it has no way of knowing yet lower levels don’t lie ahead. To the contrary, it’s likely they do.

      Simultaneously too late and too early … it’s hard to be that bad.

      This is just one more instance of an endless stream of crap the financial media feed their audience. My next post focuses on a real big one … economic mythology about inflation. We’ve highlighted a litany of them before in these pages:

      Something “enters a bear market” when it’s 20% off its highs.
      Oil prices are exclusively a function of supply and demand for oil (no mention of supply and demand for the equally important pricing unit).
      Inflation is caused by the economy “running too hot”.
      Inflation is being caused by “supply chain disruptions”.
      Inflation is measured by the CPI.
      The Fed’s role regarding inflation is to “fight it”.
      Low interest rates support “the economy”.
      A company beating analyst estimates is a victory for the company (not a failure on the part of analysts).
      Stocks are best measured by price, bonds by yield.
      Stocks “for the long run”.
      Policymakers should do everything they can to avoid a “recession”.

      I could spend all day listing unsupported assumptions, misleading suggestions, and outright falsehoods promoted by the financial media and still not be finished. Maybe one day I’ll try to devote a post just to the top ten!

  3. Peter Fife says:

    “This is just one more instance of an endless stream of crap the financial media feed their audience.”, I really like this one.

    Well, actually, I like all of the ones you’ve posted, but the above really hits the nail on the head.

  4. cb says:

    If a bottom is called, how long does the price have to stay elevated above that called bottom for it to be an accurate call?
    hours?
    days?
    weeks?
    or is it based on some identifiable technical movement?

  5. Bill Terrell says:

    Good question, CB. So much turns on the finer points of semantics. See my comments in the above reply of 0209 16:07. Was it “a” bottom or “the” bottom? Was it just the bottom “of this selloff” or “the” bottom, period?

    Yet this belies the degree of common sense involved. Calling something “a” bottom, without further qualification or context, carries few requirements. It only requires a prior trade and a subsequent trade above the purported “bottom”, with no intervening trades below it. Of course, explicit further qualification or context can modify that considerably.

  6. cb says:

    I caught and appreciated your distinction. There are probably a few important things about calling bottoms and tops, without which it might be tricky to make money as a trader calling bottoms and tops. Even understanding these things, a trader might make a correct bottom or top call and still lose money on subsequent trades.
    How long does a bottom last before being breached? (duration)
    How must range does the price move(s) off the bottom have? (amplitude)
    How much volatility is in the price motion off the bottom? (volatility)
    What is trend and long will that trend last? (slope of trend)

    1. Bill Terrell says:

      We may be trying to put too fine a point on it. If someone were to say “it’s raining outside” we wouldn’t reject or accept the statement based on whether it met a specific quantitative criterion like “at the rate of 0.65 inches per hour”, or whether it was in Pittsburgh or Los Angeles. Context is vital in evaluating such statements. If for instance it were a response to a question like “Do you want to go to the beach?”, we would know what was meant with the requisite precision. If it were a statement made by a TV weatherman, on the other hand, we might be justified in challenging it if there were no further information as to how much or where.

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