Bottom Calling

The only sure way to call a bottom is of course to………keep calling one. Does it actually make anyone money bringing on Bobblehead after Bobblehead to opine on it? 

Harry Schiller expresses my sentiments exactly over on RM the other day.

All morning I am hearing people proclaim that the bottom is in. So what? The Dow is now over 700 points off the lows. The financials have rallied almost 40% off the lows and even now are about 30% off the lows. So you’re thinking about buying the financials now? Great plan.

Personally, I would rather not worry about such arcane and ultimately unknowable things and concentrate on buying the next hard break for the next inevitable rally. That’s all I want to do. I have no interest in trying to determine if another shoe is yet to fall. How many more skeletons are in the closet, etc., etc., etc.

I realize I am a volatility trader, and short-term oriented, so "bottom" is a pretty useless concept, other than the fact it’s some sort of support to lean against if it gets anywhere near there again. But no matter what your time frame, does it matter in the least? Particularly so many points after the fact. I doubt all that many investors did nothing, nothing, nothing and then got 100% long right then and there.

More reason why this whole exercise is kind of pointless? How about the fact that what we’ve seen in Financials is beyond classic Bear Market behavior. This from Bespoke.

With the sector down over 25% so far this year, it’s hard to believe that the Financial sector has had most of its best one-day performances since 1990 during 2008. But as shown in the chart below (click thru to see) , seven of the ten best days for the sector (red dots) have come during 2008.

If this story sounds familiar, it’s because we experienced a similar situation eight years ago with the Tech sector. As shown below (again, click thru) , the Technology sector had nine of its ten best one-day gains during the bear market of 2000-2002. There’s a reason they say big days come in bad markets. When the dust settled in tech stocks, they had lost 82% of their value over a stretch of 132 weeks.

As Bespoke notes, financials never lifted as euphorically as tech, so not likely you see that 82% drop. But whatever. Yada yada yada, by all means, try to ride these turns for a short term trade. But don’t try to call some longer term bottom, it’s useless.

Right here right now, I’m net long financial and energy gamma vs. short index gamma, sort of Dispersion Light. I basically fade moves in both financial and energy and play defense in the indices if need be.

[Dispersion: The separation of white light by any means into a spectrum of color.  Photo:  Light play with a drop of water on a CD resulting in dispersion, diffraction, refraction and reflection.]

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