Everyone is so hoping that the market is bottoming because they all want to recoup their losses from last year, especially us 401k holders.  For some strange reason, corporate profits appear to be beating expectations and everyone is hoping (wishing) that the market has bottomed and turned the corner.

“Corporate profits are beating expectations by their widest margins in a year, pushing most equity markets within a whisker of new year-to-date highs and the dollar toward its 2009 lows,” John Normand, head of global currency strategy at JPMorgan Chase & Co. in London, wrote in a research note. [via Bloomberg]

What everyone forgets is that these corporate earnings, especially if you are a bank, are based on the backs of the American taxpayer and bailouts. Sure some corporate earnings are legitimate but most of these earnings defy common sense and logic.  That’s why the US Dollar is heading lower, we’re going to destroy our greenback at the expense of trying to stabilize the markets with phony earnings.

Call me an old cranky fart but we’ll be in for one more decent run in the S&P500 before it takes another big dump.  Things are lining up for a classic short squeeze where we’ll see the S&P500 run up between the 1131 and 1210 levels. This time I’ll be dumping before that and rotating some of my recent 401k profits into cash, waiting for the capitulation in the markets (which hasn’t happened BTW) to go on a buying spree.

I’m echoing TraderGav’s sentiment when I post this chart.  I never believed that I would sit through a market event like what happened this year, ever.  The good news is that my losses aren’t as bad as the 40% drop in the markets but they aren’t that good either.  Our collective portfolio’s are down approximately 20% and I’m still following my market timing model.  Only time will tell if I was complete fool or a genius.

I’m back from China and should start resuming posting as time permits.

Another brutal selloff yesterday but we’re getting close to my target zone.  My daily timing model issued a few BUY signals last Friday and the volatility indicator breached 7.  Crazy. I’m curious to see what my weekly timing model says today when I reach the office and update it.

All this crazy volatility is due to forced selloff’s by funds and investors but its got to end sometime.  My simulations show that 800 is an important level on the S&P500 followed by a test of the 700 level.  I believe that the bottom is somewhere between that range.  If that analysis is correct, then we are looking at a 50% sell off!  That’s where I’m firing my last $$$ salvo into our 401K’s and sitting tight.

This just in.  My timing model issued another SELL signal.  I think we’re setting the stage for another leg down.  I sure hope not but I follow my model religously.  My ultimate target is 700 on the S&P500 but we’ll probably hang at 900 for a bit.

Trading Forex is a lot like watching Nature.  Its all about the survival of the fittest.  Often when banks intervene in a currency to halt its slide or stop its appreciation, the result is an outlier in the overall trend.  As money floods or leaves the system, the currency will be shocked into the opposite direction.  After a few days or hours, the same trend reasserts itself and the country would’ve wasted all that time, energy, and money.

Interventions in the stock market are a lot like Forex interventions.

The trillion-dollar infusions by the U.S. and European countries into their financial systems didn’t seem enough Wednesday to fuel more than a two-day rally. Major Asian markets fell on disappointing earnings and worries about a global recession.[via Forbes]

Why should this time be any different?  My targets for the S&P500 are still at 900 then 700.

After a week like this, I’m glad the weekend is here.  I need time to relax and not think about this imploding market.  Although things are really bad out there, and will likely get worse before its over, I’m pretty upbeat.  I’m upbeat because I believe we will see a once in a lifetime opportunity to buy some great, and surviving, companies.  The hard part is figuring out when to get long.

Just like countless others investors out there, my money is trapped in a 401K, and its painful to watch years of gains evaporate.  Although timing the market by averaging down, I’m still showing a big short term loss.  Many of my co-workers don’t have that luxury and are extremely stressed, especially those who planned on retiring in the next 5 years.

If things are stressing you out, I want to offer this piece of advice to you.  The most important thing you have in your life is not money, but your health and family.  It’s in these darkest hours that we need to support each other and invest in humanity.  Be calm and be at peace.

I hope.

I believe that we are fast approaching a bottom based on my market timing model and simulations.  I know I’ve said that before but these levels of panic can’t sustain themselves for long without some sort of capitulation.  Below is a superimposed weekly chart (from 1990 through last week) of the my market timing indicator relative to the S&P500.

It’s a pretty good indication that some sort of top (not necessarily thee top) was made if a rapid rate of change in the indicator occurs while simultaneously making a new high.  Usually at these times I like to skim some profits and put them in bonds or cash.

Likewise, if the indicator experiences a massive rate of change while simultaneously making a new low, you have a pretty good idea that you’ve made a new bottom of sorts.  The timing model can’t tell me if I’ve made the BIG top or bottom, so I have to rely on other models to tell what that probability is and gauge how much money to take out or put into the markets.

Granted, we are seeing things in this market that are unprecedented but my model seems to be coping farily well.  The scary thing is I just watch my indicator blow through the 3.0, then 4.0, and now approach the 5.0 level without blinking.  These markets are in a free fall and I’m feeling the pain!

So how far will she go?

A hastily drawn yellow trend line on the chart shows the S&P500 finding support around the 1000 level first and the model issued a major BUY signal at the level.  Unfortunately we’ve already blown through 1000 so the next level of support, from inspecting the previous BIG bottom in 2003 is around the 800 level.  Then using my Genetic Algorithm model and Monte Carlo simulations, I come up with my most probable BIG bottom.  That’s the 700 level, more than 50% off the all time market high.

Could it go lower than 700, you bet!  But I’m willing to dump more money into my 401k at that level and then hold on tight.

After watching yesterday’s market plunge, followed by the 9.4% selloff in Tokyo last night, I’m thoroughly convinced that the race for the bottom is in on.

In Japan, the benchmark index dropped the most in 21 years as investors were chilled by a report in the Nikkei business daily based on unnamed sources that asserted that Toyota’s profit was likely to fall around 40% in the year to next March on weak sales in the key North American market and slower growth in China–far worse than the automaker’s previous forecast. [via Forbes]

As I said before, my simulations show a race to 700 for the S&P500.  I still have a little bit of cash left to inject into my 401k at that level.  If it goes lower I’ll be injecting my capital into new shotgun, spam, and toilet paper.

My friends, these are the times that try men’s souls.  I believe we are starting “the race” to the bottom (or not).

“We’re seeing panic all over the markets right now,” said Javier Barrio, head of equity sales for Spanish clients at Banco BPI SA in Madrid. “Governments are taking steps to try to reduce investors’ fears but confidence is weak.”[via Bloomberg]

The scary thing is that one of my simulations show the S&P500 could reach 700 rather quickly.

I know this was so last week but CitiGroup is buying Wachovia’s banking business.  Whether or not its a smart move remains to be seen but things *might* be turning around for this bad boy.  Any glimmer of hope is welcome news to long term shareholders, like myself.  What’ll make me feel really good is if CitiGroup (C) can get back above the 50 WMA.  At least my $20 average cost positions would offset my $40 average cost positions.  :)

Update: I must be cursed.  Right after I posted this, news comes out that Wells Fargo wants to buy Wachovia in its entirety.  Ugh!

Here’s yesterday’s volatility spike.  This could very well be the bottom, I hope!  My S&P500 market timing model made a 4 STDEV move yesterday and issued the strongest BUY signal yet.

I’m very cautious these days because I’ve been averaging down and losing money.  This is an extremely stupid way of investing in the short term but you gotta think long term here, and have the BOS to do so. :)