Here at the Snotwheel Group, we're getting geared up to buy the indexes, but aren't pulling the trigger just yet. We're under water on the first layer of index ETF's we bought months ago, so we've been waiting for a washout move upon which to double or triple our current number of shares. Remember, as it goes lower, it becomes less and less expensive to double your shares. In a sense, a falling market gives you leverage, provided you're not fully invested.
We haven't pulled the trigger yet because we're still eyeing the channel, waiting for the market to reach a position where it will be as oversold as it's been at its worst times since the start of this global depression. The market's level of "oversold-ness" can be determined by how far below the moving average it is, on a percentage basis. For example, on 10-16-08, the Dow hit a low of 8,200 while the 100 day moving average was at 11,300. In other words, the Dow was 27.4% below the moving average. On 11-21-08, the Dow hit a low of 7,450 while the 100 day moving average was at 10,423. At that low, the Dow was 28.5% below the moving average. The chart above shows a 90 day moving average, just fyi. It does not matter what moving average you use for this calculation, as long as it's the same one for each comparison.
It's safe to say that when the Dow is 27% below its 100 day moving average, it's as oversold as it's been over the past couple years. Today, the 100 day moving average is at 8,360. For the Dow to be 27% below this, it would have to be 6,100. For it to be 28.5% below it, it would have to reach 5,977. Anyway, this gives us a rough idea of where we would be looking to buy. Of course, there's no guarantees it will reach that target, no guarantee that it will stop falling if it does reach it, and no guarantee it won't just go slowly sideways or lower from there. Nonetheless, as a long biased retirement fund, this is where we will focus our next layer of buying.
It should be noted that if anyone wants to engage in such "risky" activity, it would be a good idea to check such numbers against the S&P500 index, as the Dow is the worst performing index of late. We intend to buy SPY and/or SSO, not the Dow this time around, so we'll be checking the math on a chart of SPY accordingly.
If the market does not reach those lows, then we just stay put. There is no rush to buy at any point that does not represent a severely oversold condition. If the market rebounds early, the next oversold condition will not be at 6,000. It may be at 5,000 or 4,000. We are not interested in buying at 6,000 per se, but at 28% below the 100 day moving average, whatever the market's level may be at that time.
Tomorrow morning we will get the all-important jobs report. This will determine the direction of the market, and if it is negatively received, we could easily hit 6,000 by early next week. If the market continues to crash over the next few sessions, and you intend to buy, it's best to turn CNBC off and just focus on nothing but the market's level. The media will be overwhelmingly negative, and it will appear that the bottom is falling out of the market. There could be talks of runs on banks and such, along with many excuses as to why the market is falling. Truth is, it is only falling because people are selling. And people only sell for one reason... they think it's going lower and they don't want to lose money. It's a self-fulfilling prophecy. If you intend to buy, don't get caught up in the emotion. Just pull the trigger when it feels most scary to do so, and then just walk away.
AI
