Falling knives? Sucker's rally?

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.wsj.com/finance/stocks/the-stock-markets-fear-gauges-point-to-a-bounce-not-a-bottom-403e14f2?mod=hp_lead_pos3

The Stock Market’s Fear Gauges Point to a Bounce, Not a Bottom

The ingredients are in place for a ‘sucker’s rally’ in stocks

By Spencer Jakab, The Wall Street Journal, April 7, 2025

…
Extremes in sentiment are more likely to point to a short-term “sucker’s rally” that serves to crush spirits even more. Take that October 2008 VIX record: Between Oct. 27 and Nov. 6, stocks would bounce by a fifth. Then they lost another quarter over four months… it is a good bet that coming rallies will be of the sucker’s variety. Those still can be lucrative for the speculatively minded, or an opportunity to lighten up on stocks for people who regret not doing so ahead of “Liberation Day.” Tread carefully, though…

As we will probably soon relearn, markets don’t go down in a straight line. But they go down a lot more than we might imagine. [end quote]

https://www.wsj.com/finance/stocks/how-far-does-the-market-have-to-fall-before-its-time-to-buy-b2556378?mod=hp_lead_pos2

How Far Does the Market Have to Fall Before It’s Time to Buy?

Quite a lot of bad news is now priced in. Brave investors can start to tiptoe back into the market—so long as they realize that stocks could easily fall much further.

By James Mackintosh, The Wall Street Journal, Updated April 7, 2025

…
The tariffs imposed by President Trump will hammer the economy and threaten global recession. Perhaps worse, the sheer incompetence of their execution—with tariffs on uninhabited islands and no actual reciprocity in the flawed formula used—has undermined faith in U.S. policymaking. When fear reigns supreme no one wants stocks…

Buy—as legendary banker Nathan Mayer Rothschild never actually said—when there is blood in the streets, even if the blood is your own…

Bear markets are full of rip-your-face-off rallies that hardly show up on long-run charts of declines. The dead cat bounce of November 2008 took the S&P 500 up 27% by January, before it lost almost a third of its value to bottom in March 2009. [And the 2000 dot-com bubble burst didn’t hit bottom until March 2002. – W]

Without a trigger, stocks will eventually find their low. That hardly ever happens before the recession starts, so a longer-term recovery needs something to suggest recession will be avoided… [end quote]

Here are charts:
VIX actually hit 60! Wow!

The next release of the St. Louis Fed Financial Stress Index will be in 3 days. At last report, financial conditions were loose so unless there’s a radical change there isn’t a financial crisis and the Fed won’t step in.

Investor sentiment is bearish but that data is from last week.

The Fear & Greed Index, which was updated today, is in Extreme Fear.

When data that’s more than a couple of days old isn’t worth looking at you know the market is going crazy.

Be careful out there.

Wendy

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It looked like someone put their thumb on the “good” scale early this morning by buying the high-fliers, but may have had it hit with a hammer.

Trying “the hand of God” may work for Maradona, but the market is a pretty complex beast at this stage of thee game.

Jeff

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That was my thought, in March of 2009. Q1 reports were horrible, in spite of universal media “better than expected” spin. Unemployment didn’t bottom out for another six months.

Steve

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Our own mungofitch (or maybe formerly our own mungofitch) developed a major bottom detector, which is pretty darn accurate. Certainly accurate enough to trade on. He reports it has not yet triggered and is not yet close to triggering.

He also has a minor bottom detector which has triggered, but it isn’t as reliable.

And it bears pointing out something we all know and have talked about: The market started from a really high valuation. Thing is, it still has a high valuation. It is entirely plausible there is more blood to be shed.

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I hesitate to do testimonials but I really did make a timid purchase that resulted from his bottom call in December 2018. I only wish had been less timid. I really did start dollar cost averaging in my SS checks in September 2022 which also was fortuitous. If we still have a democracy when he makes his next bottom call, I will take it seriously.

I could be wrong to remain overweight cash at this point, but in this uncertain environment the only things I have bought recently are fresh local eggs, spinach, butter lettuce and baked bread at the local farmer’s market.

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We have only had two legs down, we are due for a bounce and then another 3rd leg down. That is when you will see the bottom.

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Market bottoms, and economic bottoms do not align, markets bottom often happen in the middle of recession or other economic downturn. $SPY recovered by Aug-2020, even though inflation, unemployment, COVID deaths all continued for another year.

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Tricky, tricky, tricky, tricky.

If it wasn’t difficult enough to understand what’s going on, now we have to worry about false reporting whipsawing the markets.

https://www.npr.org/2025/04/07/nx-s1-5355055/tariffs-markets-x-social-media

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Bounce to SPY $550, and then retest today’s low or possibly go bit lower to flush all the longs… Sell the rally raise the cash… while hoping v-shape recovery is not going to blindside us.

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Are you sure that’s 2 legs and not just one? There wasn’t a bounce between them, just a weekend.
Wendy

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I am counting 17283.24 as the low of the first leg and then do you see how it went up to 18281.13? That is the top of the second leg. I am thinking that it will go up from here and then go back down. Some people think 20204.58 to 20110.12 as the first leg but I think that is consolidation. But I am just a novice and this is just a guess on my part.

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Here is something to watch on how the market is doing.

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Depends. If we get the tax cut, you have not seen nothing yet.

Later if sally and freddy are privatized? Worse.

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Futures indicate bounceage Tuesday. Asian markets up now. Nikkei up nearly 5.5%.

An analyst on the Beeb tonight said the same thing I said about my idiot boss at the pump seal company. All it takes for the markets to calm, is TIG to stop agitating.

Steve

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This morning (8 April) he posted:

Latest update on my bottom detectors:

2025-03-28 No signal
2025-03-31 Minor bottom signal
2025-04-01 No signal
2025-04-02 No signal
2025-04-03 Minor bottom signal
2025-04-04 Minor bottom signal
2025-04-07 One of my two major bottom detectors triggered, but not the best and oldest “classic” one with all the post discovery history.

Since these signals often trigger several days in a row, the usual rule of thumb is to wait for the first day WITHOUT a signal before becoming a buyer.
However, I see that the futures market is up a whole lot in pre-market, so today (April 8) seems likely to be a bounce day, so for the slightly nimble/aggressive there is a case to buy now, at least for a trade.

Recap of the meanings: the minor bottom signals tend to be pretty good for a bounce of up to a month or so on average, but not much predictive power beyond that time frame.
The classic major bottom detectors are rare and have historically led to good returns for a year, even two on average.
The newer major bottom signal that triggered yesterday could perhaps be considered in the middle…it might not be THE bottom, but it’s pretty bottom like. Most recently it gave signals in May, July and September 2022, the last one being 2022-09-29.

The classic major bottom signal (the one with the great history) is pretty stubborn–it would probably need another four bad days before it triggered. To overgeneralize, it is a little uncertain about current situation because, other than yesterday, too many securities have still been doing well. As a result it doesn’t smell like capitulation yet.

Jim

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If you would have bought on 9/29 you still hadn’t seen the bottom until 10/27. On the Nasdaq you still had 800 points to drop and the S&P you had 300 points.

Edit: But the call seems pretty good

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Based on two totally different methodologies we seem to agree. That’s a good sign.

The Captain

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And, in case anyone is interested in the original post, here’s a direct link on shrewdm.com to syke6 and DrBob2’s references:
Post #3444 by mungofitch on the Mechanical Investing board

Pete

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The bond market is showing extreme signs of stress. Major deleveraging is going on… by the way bond market deleveraging is not a good thing. The entire financial system is build around leverage. There are signs of liquidity issues showing up. What that means is, if there are liquidity issues, then multi-strategy hedge funds, will sell everything that includes equities. We may get some major flush.

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Dear Kingran,

Not slagging on you, the amount of garbage on this board for the last few days is amazing. Your post is among the few that is on target.

This will be only one leg down. It will take 1.5 to 3 years for the markets to bottom.

No one here needs to buy the “bottom”. The recovery will take so long it is the long bottom.

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