A Short Term Bottom Could Be Dangerous

by | Aug 9, 2007 | Asset Management

The market may be putting in a short term bottom here.

That’s great news for traders, not so hot if you are longer term, like most folks. The short-term indicators I use, like the NYSE Hi-Lo Index and the NYSE 10-week moving average have reached pretty washed out (sometimes called “over-sold”) levels.

The risk, for nimble traders, can be pretty low and sometimes, the odds can be in your favor.

Sometimes. If you are nimble. I’m not as nimble as I used to be. Are you?

The risk in jumping back in right away is that this potential bounce could be very short-lived. And then we’d be right back to a risk-filled environment.

As you’ve seen in some very recent posts, the real trick (if there is a trick) to making money in the market is avoiding losses, especially large losses, for any length of time.

Even in supposedly “strong” up days in the market (like on Monday August 6th), the number of new lows being made has been swamping the number of stocks making new highs. That particular day, Monday August 6th, was a day where the market was UP nearly 300 points. Yet for every stock making a new high that day, there more than 10 stocks making new lows.

As far as I’m concerned, I’ll wait until these indicators actually turn UP before committing money. They can wallow down here near the bottom for weeks, and sometimes months. And sometimes, like in 2002, the real “throwing in the towel, tossing the baby out with the bath water” type of selling didn’t happen until we were actually DOWN at these levels anyway.

I’ve recently heard comparisons of the current market to the market in 1957, and 1987 and other years. As far as I’m concerned, the market is like snowflakes, no two are ever alike.

So fasten your seatbelts, we’re in for some more turbulence. That’s it for today. We’ll talk to you soon.


Thomas Mullooly
Mullooly Asset Management LLC
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