Smile if you are in the stock market

[oldtimer]

Not sure Indy...I think the song is mostly about truth than anything else, but you're right the imagery is striking.

[oldbuckster]

"I'd rather die happy, than not die at all"........................the Roller Coaster continues................Wanna Buy a House ??????????

[PhilMays]

Morning OB,

Speaking of buying a house....Do you know anything about Elmira Bank?

[oldbuckster]

Morning OB,

Speaking of buying a house....Do you know anything about Elmira Bank?

Ahh, is that a Bank in Elmira ?................No Phil, I don't...................Funny how housing sales around here have died, but new construction is everywhere..............Condo's in Saratoga Springs, they can't build them quick enough........Us common folk are beginning to feel pushed out, I guess I'm Lucky that I own my humble abode...............

[IndyKlipschFan]

Just remember too, rarely do you make a good descision when your under pressure and paniced. Calm down, and do not over react.

[PhilMays]

Just remember too, rarely do you make a good descision when your under pressure and paniced. Calm down, and do not over react.

Words to live by!

[artto]

After Friday's carnage that registered historical extremes on a number of fronts (mostly breadth-related), some precedents were pretty clear in their suggestion - either we were witnessing the 2nd good buying opportunity this year, or things were about to get much, much worse.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

I'm not prone to those kinds of dramatic, binary statements, but again the precedents were clear in their direction, and it tended to be either one or the other, with little in-between.

I could go over more extremes that triggered today, such as the extreme drop in the 10-day average of the Up Issues Ratio, or the jump in the Volatility Index (VIX) to 30% above its 10-day average. Prior precedents of those extremes led to the same conclusions as the ones already gone over, so adding more evidence to the pile just gets redundant.

It will be interesting to see some of the readings that come out tonight and over the weekend, particularly related to small options traders. They loaded up on speculative call options last week and got crushed, so we'll get a chance to see how they reacted the past few days. It would take a major change in their behavior to trigger a bullish (for the market) signal, but weirder things have happened.

The latest Commitments of Traders report, released Friday afternoon and covering positions as of this past Tuesday, showed that commercial in the equity index futures added yet again to their record net long position, pushing it up to $24 billion.

Last week I was starting to become somewhat disillusioned with the report since traders were acting so much differently than they had been during the past seven years. This is an ongoing concern, and we should keep watching the CFTC (the regulator of the futures markets) to see if they make any statements regarding the reliability of the data in regards to complicated swap transactions that already forced them to change the reporting for some agriculture and energy contracts.

Looking carefully at many of the instances of extreme breadth movements like we experienced this week, it seems as though Friday's low (especially the S&P500) should serve as an important benchmark, especially on a closing basis. In other words, the odds for this being approximate to a low (within a trading day) have not diminished as long as we don't violate Friday's low on a closing basis. Another close below here would usher in some of the uglier historical comparisons.

As of last Thursday afternoon, I was looking for a whoosh lower Friday morning, preferably to the 1460 area on the S&P, in order to take another stab on the long side assuming we were in for the rally as opposed to crash. We had to wait longer than I thought to see that test, but the index did hit 1462 very early in the afternoon and took off again from there. Apparently the "Black Monday" idea took hold, though, and the indices got crushed in the final hour of trading, and did so on increasingly substantial momentum going into the close.

I still like the idea of looking for a low somewhere around here, and will be using the same thoughts on Monday that I was Friday.....I want to see an early-morning push lower that stabilizes, and then looking for the afternoon reversal. Either way, Monday should tell the tale about what the past few days have been leading up to - crash or recovery.

[oldbuckster]

Everytime it sets a new high, it goes back down. I think it's just a normal adjustment...no more...no less. I'm beginning to real miss Alan Greenspan, this Bush guy is Bush League for sure...........it will settle down....time will tell....Mobil/Exxon stockholders are happy though...........EH !!!!!

[artto]

Why anyone would be happy about their equity (in this case Exxon Mobile) falling 9.5% in four days, I dont know, but to each his own.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

At the moment, this is not about setting new highs and then going back down, as a normal adjustment. In fact, what occurred last week (such extremes in the Breadth Indicators, ie: up verses down ratios, advance/decline ratios, new highs/new lows, the kind of things that measure market internal strength regardless of what the indices are doing), has happened only a few times in our recent stock market history, the first being in the end of June, 1960. The other times were end of August, 1966, early October 1979, October 19, 1987 (Black Monday) and May 2004.

When we reach these types of breadth extremes, there are only three outcomes that tend to result:

1. An honest-to-goodness one-day crash ala 1987.

2. We bounce a bit, then roll over into a secular bear market, ala the mid-1970's.

3. Much more commonly, we form a low and rally for the next three to six months.

If we get the prize behind door #3, then we should also form a short-term low either this Monday morning or by Tuesday. Anything other than that, and the first two scenarios increase in probability.

[oldtimer]

Trader cracks, investor relax. Traders panic, investors plan it. short-termers fear, long-termers sneer. You wanna play it like a casino? Then take it up the shootarino. What's the matter, volatility got you down? Might as well bet on continued volatility with a put-call spread, and pray for big ups and downs. That's gambling you say? Then head on over to investor way.

There has never been a 20 year period when the s&p has lost money. There have been very few ten year periods when the s&p has lost money. Rolling periods folks. Dollar cost averaging improves these numbers. Remember the story that money was not made whole after the crash of 29 until the fifties? That was money at the time of 1929. If you continued to dollar cost average after then it is a different story. The moral is are you an investor or a speculator? It is easier to call a top than a bottom. Wanna speculate? You might get out near the top but when will you be brave enough to get in near the bottom? Answer, you probably won't.

Of course this is only a history lesson. If you think that we are headed the way of ancient Rome you might decide this is the end for us. Yet smile anyway! Somewhere in the world there are golden opportunities, and thanks to the modern financial sytem, you can put your money there! The real lesson is to have a diversified portfolio, and keep it that way.

[artto]

"If you continued to dollar cost average"

"IF" GRANDMA HAD BALLS SHE'D BE GRANDPA

"The real lesson is to have a diversified portfolio, and keep it that way."

DIVERSITY IS AN EXCUSE FOR IGNORNACE. (William O'Neil, INVESTORS Business Daily)

"There has never been a 20 year period when the s&p has lost money"

WHICH "S&P" ARE YOU TALKING ABOUT? THE S&P 500 (BROAD MARKET INDEX) DIDN'T COME ABOUT UNTIL 1957

AND WHY WOULD VOLATILITY GET ME DOWN? YOU CAN'T TRADE **** WITHOUT VOLATILITY. VOLATILITY IS WHAT MAKES "INVESTORS" NERVOUS.

AS LONG AS WE'RE ON THE "SAYINGS" THANG, HERE'S A FEW I HAVE POSTED ON MY OFFICE WALLS:

YOUR FIRST LOSS IS YOUR BEST LOSS. IT'S A DAY YOU WILL ALWAYS REMEMBER

DON'T BECOME WHAT YOU HATE

NEVER ADD TO A LOSING POSITION

THERE ARE OLD TRADERS AND THERE ARE BOLD TRADERS. BUT THERE ARE NO OLD BOLD TRADERS

THE INVESTORS CHIEF PROBLEM ~ AND EVEN HIS WORST ENEMY~IS LIKELY TO BE HIMSELF

STOP & SMELL THE FUTURE.................THEN YOU'LL REALLY HAVE SOMETHING TO COMPLAIN ABOUT!

[:-*]

[oldtimer]

"If you continued to dollar cost average"

"IF" GRANDMA HAD BALLS SHE'D BE GRANDPA

"The real lesson is to have a diversified portfolio, and keep it that way."

DIVERSITY IS AN EXCUSE FOR IGNORNACE. (William O'Neil, INVESTORS Business Daily)

"There has never been a 20 year period when the s&p has lost money"

WHICH "S&P" ARE YOU TALKING ABOUT? THE S&P 500 (BROAD MARKET INDEX) DIDN'T COME ABOUT UNTIL 1957

AND WHY WOULD VOLATILITY GET ME DOWN? YOU CAN'T TRADE **** WITHOUT VOLATILITY. VOLATILITY IS WHAT MAKES "INVESTORS" NERVOUS.

AS LONG AS WE'RE ON THE "SAYINGS" THANG, HERE'S A FEW I HAVE POSTED ON MY OFFICE WALLS:

YOUR FIRST LOSS IS YOUR BEST LOSS. IT'S A DAY YOU WILL ALWAYS REMEMBER

DON'T BECOME WHAT YOU HATE

NEVER ADD TO A LOSING POSITION

THERE ARE OLD TRADERS AND THERE ARE BOLD TRADERS. BUT THERE ARE NO OLD BOLD TRADERS

THE INVESTORS CHIEF PROBLEM ~ AND EVEN HIS WORST ENEMY~IS LIKELY TO BE HIMSELF

STOP & SMELL THE FUTURE.................THEN YOU'LL REALLY HAVE SOMETHING TO COMPLAIN ABOUT!

[:-*]

First of all, the only balls required are to continue investing. Transsexualism has nothing to do with it.

Second of all, O'Neil is entitled to his opinion but diversity is more than an excuse for ignorance, it's a strategy designed to make money in all market conditions without having it be your full time job.

Thirdly, I am talking about the S&P 500, and the numbers for it have been crunched backwards (Ibbotson) for historical comparisons.

Next, volatility should NOT get you down, since this is your full time job. I apologize if you think that my post was directed at you in particular, and it is unfortunate but natural to the human condition that you would.

The investors chief problem being himself is true. That's why discipline in the face of adversity is important. Just ask any Kung Fu master.

[oldtimer]

BTW, thanks for shouting.

[artto]

Continuing to invest in a downtrend is, IMO of course, stupid. There is absolutely no reason to remain invested, or to continue investing in a market that is going down. In fact, what you will almost always find is that for every bear market, somewhere else there is a bull market, and its also probably the very reason why the other market is down.

<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

If you want to invest in the average of the averages, go ahead, be my guest, but you dont have to. However it seems that Wall Streets power still has a grip on the retail Joes mentality.

Furthermore, I simply put forth a set of conditions, which in fact do exist, and are quite rare, especially in uncharted territory (with so many new index highs) as we are now. This is not an opinion. I also simply put forth the three possible scenarios, and also noted which outcome has occurred most frequently in the past. I made no predications of any kind. I just wanted to say this to clear things up because its apparent that people will read their own biases into the statements. I simply presented some facts. Everyone should act accordingly to their own risk tolerance, time horizon and objectives. There is no right answer that is the same for everyone.

As far as diversity being a strategy designed to make money in all market conditions without having it be your full time job, this is also Wall Street folly. There are far better instruments/tools available to the average investor today that address the issue of safety, ie: making money in all market conditions. The most important is discipline. The only real reason for having any amount of diversity at all has nothing to do making money in all market conditions (ie: something goes up here while another thing goes down somewhere else so you dont lose a lot). The real reason for any diversity is so you dont miss a big move. Most of your largest gains will most likely come from one, maybe two positions. There is no reason to hang onto losers, just as theres no reason to invest in the weakest stocks, or to buy more in a down trend. (BTW, were not actually in a downtrend yet, by sell signals have been issued across the board. Even some of the longer-term money mangers I know have gone to 100% cash last week, I have not). Im not pro bull or bear. I simply look at the facts and try to hear what the market is telling me. Right now its telling me that its been weakening for some time now (months), and that we are most likely at some kind of pivot point. But until I see what happens in the next day or two, I dont know.

[oldtimer]

Hey Artto, I hear ya, but did I not close out my post which actually was directed in response to you with a statement on discipline? You say not to invest in a downmarket in your opener, yet in the same sentence talk about a bull being somewhere. This is the prime reason for diversity. Not that you can't adjust the mix, but diversification is still the key.

If right after 9/11 you told someone that they could get 16% average annual return,until 7/29/07 do you not think they would take it? I did it with a simple 3 fund portfolio. I did it by investing in "down" markets. Yes you don't miss a big move, that's why you do it because calling a bottom is hard once, and it's really hard to do consistently.

As a point of order, when I previously referred to "traders" I did not mean those whose actual job is trading, but those who have every day jobs and instead of investing with a plan and purpose and time horizon, try to use those same dollars to "beat the market."

[Tarheel]

okay guys.....I guess we are expecting a bounce tommorow. Sell into the bounce or hang on for dear life? I held fast friday but if we go down monday....whats the plan? Got a five year time horizon and would like double by then....this close to retirement can't lose a bundle like in 2000. If you can't tell me what to do tommorow then I will go back to watching Godfather part II fo the twelth time this weekend.

[oldtimer]

With a five year time horizon you need to be more into bond type yields and less into equities. But you cannot double that way. Look at your total portfolio, and I mean everything, like do you own your house free and clear (a good substitute for bonds) and whatever else your particular situation is, then decide on the risk you want to take.

[oldtimer]

I am not expecting a bounce, but it could happen. Tomorrow does not matter it's the next five years for you that matter. I say that I am not expecting a bounce, but I am not expecting a big rally either. I just don't care because I don't need to care yet. Somehow this makes me stupid, but if I were stupid would I be in a postion not to care? Perspective for all you Klipsch fans is what I am talking about. We all have a different one, do what is right for yours.

[oldtimer]

Watch Godfather Part II. But then , watch Beerfest. This is one the worst movies ever made. It's so bad I have watched it at least three times now in the past two weeks. This is one of the most time wasting movies you will ever see. Once you see this, you will gain something. I don't know what (you know the french saying).

[Tarheel]

You are right Brian.....I need 15% per year for the next five to double allowing for compounded interest. I have been investing in international funds, energy, and other common stocks. I am a gambler but otherwise it will be a ho hum retirement unless I hit the powerball numbers which is the fifth leg of my retirement program. Can't really count on the house since I hope not to move till they carry me out on a stretcher.