The Race To The Bottom Begins - Part III

Posted on Do 09 Oktober 2008 in misc • 2 min read

  • 401K
  • Genetic Algorithms
  • Neural Nets
  • Trends tags:
  • 401K
  • Genetic Algorithms
  • Neural Nets
  • S&P500
  • Trends meta: _aioseop_keywords: Trends, 401k, Timing Markets, Investing, Genetic Algorithms, Neural Nets, S&P500 _edit_last: '5' dsq_thread_id: '202165308' author:

    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.