Wednesday, March 11, 2009

Site Seeing: SentimenTrader on What Makes This Market Different

I recently posted on the topic of blindly following historical patterns in the market. It's been a difficult time for traders and portfolio managers who have assumed that the current market decline is like recent ones. Oversold markets, instead of bouncing, have led to further oversold conditions and lower prices. Jason Goepfert, posting on this topic on his SentimenTrader site, points out, "The most striking aspect of the decline since the fall of 2007 is the utter lack of any lasting rally. We've had a number of fits and starts, but nothing that took for very long. That's what has frustrated traders and investors alike more than just about anything."

Jason backs his view with an interesting chart reproduced above. It goes back to the late 1920s and shows the length of time between 80-day rally periods in the S&P 500 Index. The current period of 288 days is matched only by the weak markets of late 1932, early 1975, and mid-1978. None of those times corresponded to short-term market bottoms, but all turned out to be close to long-term investment opportunities. Clearly, it's been hazardous to model recent markets on data going back to the 1990s or even the 1980s.

I've found Jason's historical analyses to be helpful in gauging the market's long and short-term pictures. He is generously offering to extend his usual 14 day free trial period to 30 days for TraderFeed readers. If you go to his free trial page and enter "traderfeed30" in the Detail field, you'll get the extended look. His service includes historical studies and email updates, as well as market commentary. He's also posting some of his short-term ideas to Twitter; worth checking out!