My rare “major bottom detector” signal triggered yesterday. (Sep 29 S&P close 3640.47)
Sometimes it triggers several days in a row or multiple days in a week, so it’s not really “safe” till the first day it does not trigger.
But if today is a nice bounce that’s a pretty good omen.
Last signal was 2020-03-23 with S&P close 2237, one year return about 67%.
That was unusually lucky, but the average forward is good, even when the signal is too early.
If I had any short term short positions I’d close them.
I didn’t realize Jim did a bottom detector for the S&P 500. I guess it makes sense. There’s a separate one for Berkshire itself that I’m more curious about.
That is very interesting. Lines up with AAII bearish sentiment consecutive weeks worse than 2009 and Tommy Thornton DeMark indicators signaling bottom. 2/5 year spreads Vs tips rolling over
Can’t speak with certainty, but I’m pretty sure that his major bottom detector fired again after another day of heavy selling. As I recall, it takes quite some time of sustained selling to trigger, then ongoing further selling causes repeated signals.
Anybody know what are the COMPONENTS of The Indicator?
If you search the Mechanical Investing Board you can probably turn up a general description. He’s never given a precise description that I’ve seen.
I had the impression from Jim that the S&P 500 still remains significantly overvalued. Is this just some tactical bottom for traders or is this his “no kidding” mother of all bottoms? I’m hoping for a Jeremy Grantham type bottom before I get back to indexing. I think he suggests anywhere from 2500 to 3000?
His major bottom indicator is strictly a mechanical indicator that indicates the market has reached a seriously over-sold state where many people are bailing out after reaching ‘max pain’. With so many people selling out, the supply for further heavy selling eventually wears thin and the market has the base formed for an extended rally on the order of months with the overall trend up.
As I recall, it says nothing about this being the ‘mother of all bottoms’ ultimate low of the current bear market. The market could trend up for a quite a few months after this selling peters out, then further economic events cause the bear to come roaring back and takes us even lower. This would be entirely in accordance with his indicators prediction of a major bottom, as I understand it.
I’m just going off memory here … I should dig up some old posts to confirm. Anyone else recall more specifics?
He talked about how when the blood is in the streets and the major bottom is formed, the stocks that do the best for the first phase of the rebound are the trashiest stocks that fell the most, but that he never has the nerve to buy them.
Shoot, I wish he’d come along to the new boards. Definitely miss him.
A while back we were discussing how soon after a seemingly capitulation
bottom it was safe to go back into the market. Certainly some confirmation
is in order, since (a) bottom detector signals are not perfect, and
(b) the risk of being wrong is huge, since it’s often during a cascading market crash.
I mentioned off the top of my head that even if my major bottom signal
had triggered (which it has, on what has been the bottom so far),
I’d wait for at least for one positive NH-NL day.
So, I decided to test that.
Thesis: If you have been bearish for a while, the first such day
is a pretty good day to buy. For “bearish for a while”, I took that
the NH-NL has been continuously negative for quite a number of days.
Basically, it works pretty well. The limitation is that during jagged
cascading falls you do tend to get a positive NH-NL day once in a while
before the ultimate bottom, so requiring a long stretch of bearishness
helps, but makes the signals quite infrequent.
The longer the stretch, the better the signals.
I believe Jim’s thinking on this has changed. I can’t remember for sure, but I think he just looks for a couple of up days (on high vol?) as confirmation of the signal. Waiting for a + NHNL signal would likely be a longer wait.
“Small” is a not a bad proxy for “trash” in a crash, and there are lots of smallcap funds. EM might also be a not bad proxy. Sometimes it’s more palatable to order a trash buffet and close your eyes, than try to pick through the a la carte trash menu.
One problem is just how far trash can fall. It’s usually a lot further than you would think possible, even at whole-sector level.
For what it’s worth, I’m picking up a big change in sentiment on the Millenial/Zoomer investment boards I follow this week.
A lot of people seemed to believe Apple’s share price was an unbreakable cornerstone of the market, and the quick drop is unnerving them. I didn’t notice such a turn of sentiment in June, people were still quite confident then. I’m also seeing a lot of people posting along the lines of: “I’m sick of this! Whatever I choose, call or puts, I still lose!”.
Doesn’t add up to much, but, the ‘buy every dip, it won’t go wrong’ enthusiasm that has been entrained into young investors for the last 12 years of bull market, is clearly fading, and being replaced with ‘how can I trust this dip isn’t going to wreck me just like all the others?’
Jim’s new site – www.mungofitch.com – now has its first post, confirming that his major bottom detector triggered on Sep 29 and was then silent on Sep 30. Go read it firsthand. Yeah!
Shawn