I am absolutely no expert on this, not least because I don’t know the formal description for his current MI approach to identifying major bottoms (only the post from … 2011?).
My understanding is that the major bottom detector can keep triggering again and again and again and when it stops triggering, and turns positive, then in the short term it may be a good idea to buy. MAYBE. Because in a ‘deep and tricky part’ of the crash, you may get a couple of false positives before the true bottom.
If I had to guess, from the contagion-like behaviour and extreme moves in the UK government bond and currency markets last Tuesday, and the very high overnight repo rate, we may be in a ‘deep part’ of the crash.
I’m just making this up here, but on the occasions when it works well, the pattern goes something like this:
Day 0-30: negative new high new lows
Day 31: lots of shares dumped -3%
Day 32: lots of shares dumped -2%
Day 33: positive new high new low ← this turns out to be a false positive but not terrible time to buy
Day 34: lots of shares dumped -5%
Day 35: some shares dumped -1%
Day 36: positive new highs new lows <—
Day 37: … short term bounce … ?
It depends whether you want to trade the bear market, or if you want to buy at a particular price point. For example it’s possible to absolute nail several local bottoms with a successful ‘bottom detector’ but then find yourself having lost money when subsequent market bottoms are visited.
25% is not an especially deep market bottom when you consider the sheer range of awfulness we face
-
market contagion events
-
housing bubble crashing
-
general bond bubble crashing including high quality bonds
-
junk bond bubble
-
crash starting with stocks at the 1st/2nd most high valuation in history
-
stocks still far above historical norms of valuation (e.g. CAPE, buffett ratio),
-
inflation still persistent and also rising (europe now 10%, UK >12% RPI)
-
rates still rising and central banks committing grimly to more rate rises and faster than expected and further than expected
-
historically bear markets do not fully bottom till rates stop rising
-
low probability of a major fed pivot (though in fairness, we have just seen a reluctant temporary pivot from the BOE, likely from heavy political pressure)
-
downturns in particular sectors that are highly represented in the sp500 like tech, advertising, consumer discretionary