Did you see what happened today? One day and folks on CNBC went from “sell sell” to “hey maybe its time to build up a position.” This is funny because you need to ask yourself, what happened? After all we had market technicians saying, “the world is coming to an end.”
In my previous Bull in a Bear jacket posting I said we would break 1300, and then maybe 1250, but most likely not 1200. What does my system say now? It says we are not out of the woods. I have two scenarios of how things will progress. Following is my optimistic view.
In this scenario we break 1250 and bounce back before heading higher. While I could see this happening, its not what I am using for calculations because I like padding my buys.
My buys are assuming the following scenario.
In this scenario we might break 1200, and if we do its a slight break. In this scenario we break and then bounce back. Regardless of which scenario you follow, the bounce back looks likely in the fall or winter of 2008.
If anything has changed for me since my original posting is that the bounce back is autumn and winter and that I am more confident with my bottom of 1200. Though there are scenarios where we break 1200, and bottom at 1100. It seems remote, but not impossible.
What today proves is that you can’t bottom pick because things can change from one moment to the next. If today proves to be the bottom then those that sold into the rally will be caught with their pants down, proving my other posting that it is a bad idea for the value investor to sell into a bear rally.