Inaugural post: Bottom or just a pause?

The month of October has lived up to its hype logging one of the most dramatic sustained plunges in recent history. The notion of a Bear market and a recession are no longer questioned by pundits. Multiple measures point to a near term bottom, but in this market nothing should be taken for granted.

The case for a bottom (near term)

Exibit A: Note the 34% divergence from the 200DMA

We have to go all the way back to 1929 to find a similar MA divergance.

I say "similar" because in Oct 1929 the divergance was slightly less at ~30%.

Exibit B: The VIX (new) logged a record 80+ on record market volume. The VXO also reached a near record high above $100. (only 1987 saw the VXO spike higher) The differences between the VXO and VIX are subtle but important. Visit the CBOE site for more info. Nonetheless, spikes above 40 have reliably marked bottoms in the past.

Caveat: We are still at extreme VIX/VXO highs. The conservative (and likey late) move would be to wait until these retreat to near normal levels.

Exibit C: The Libor as measured by the TED Spread has backed off it's peak. This is the most significant development. The credit market has been leading the equities market by the nose. Without a break here the carnage would continue.

We're far from safe and buying here is unsettling as it should be at a bottom. I have become Bullish, albeit reluctantly and only temporarily. Position size should be commensurate with risk appetite and be assured risks are high. This is no market to make a last stand. However, with the above premise last Thursday I launched a few long probes (small experimental long positions) in RIMM, ACI, PCG and the $OIH. I made followup buys to these on Friday with Stops at last weeks lows. A detailed analysis of these to follow.