Market Bottom Calling Methods

Many have attempted to call the bottom in the current market distress.  We are planning a longer article on this subject, looking to some of the experts on various indicators like the VIX.

There are plenty of  VIX amateurs.  These are people that go on CNBC and offer an opinion based upon simplistic comparisons to old VIX readings.  If you asked them how the VIX was calculated, they would not be able to answer.  They are reaching for pitches out of their “happy zone” as we pointed out yesterday.  They would have bought at VIX 30, 40, 50, and 60.

We look to our featured experts like Adam Warner, who has repeatedly explained why it might be right to buy high implied volatility, and Bill Luby.

None of the technical indicators have worked well.  None of the fundamental methods work in a period of forced sales, which we highlighted last week.

The Gong Model

Many readers have inquired about our own “Gong Model.”  The whimsical name is drawn from the expression that no one rings a gong at the bottom.  We have been bearish in our public posture throughout the decline as noted in our weekly TCA-ETF updates, waiting for a good signal.

The Gong has two steps.  First the hammer has been drawn back.  We have been surprised that this did not happen sooner, consulting with our system guru, Vince, after each day’s trading.  The Gong has been patiently correct, defying all of the other indicators.  We found it difficult to believe.

To our surprise, it was only yesterday that the hammer pulled back.  We now await the swing, something that we will act on for our investors and communicate shortly thereafter.

The government moves were an important step in unfreezing credit markets, removing counter-party risk.  This is the first of several indicators that fundamental investors should have in mind.  Now everyone wants to know how the Paulson Plan will increase lending.  There are several indicators of this that we are following.

Conclusion

Investors waiting for the right pitch will have the opportunity of a lifetime.  The Gong is not a precise trading bottom, but it does signal an “all clear” where investors have a much better risk/reward ratio.

Posted in Categories: Contributor, Economy, External Research.

Subscribe by RSS Subscribe by Email