Ironically when trying to call a bottom during a decline like this it becomes tough because the rules of the game are being re-written while it is being played. As a result many timing tools have been rendered worthless, the VIX to name one.
However, the one fundamental tool that has kept me out of trouble here has been watching the level of commercial buying or lack thereof. During the last decline that made the bottoms in 2002 and 2003, all one had to do was buy when the commercials began buying and they would have been in within a week of each of the major lows. It is exactly what I did. Recently during this whole decline the commercials have stayed solidly on the short side of the market, until this changes there is no reason to look at the long side in my opinion.
Commercials are hedgers by nature so usually they will be scale down buyers due to their basic function, which would normally reflect buying during moves like this. When they are selling it is an abnormal pattern which most often is very bearish. It is kind of an art reading this report and interpreting it and it is something I am constantly learning from even though I have watched it for many years.
With all that aside, I will not be looking for longs until the commercials show significant buying and there is no sign of that yet.
Guessing levels is tough but there does seem to be some confluence of things in the DOW 5500 area including elliott wave counts which I don’t use, and some valuation models. I don’t predict numbers that is for ego, I trade. However, those are numbers that if reached I might scale in buy without waiting for other things. I hope we don’t go that far. I would rather buy at higher prices than that if the conditions are right. Moving average crossovers like what was alluded to do not work, every study I have ever done or read about shows a net loss of money with those strategies so don’t use them.
