Those who followed our guidance of the Big Rollover in October, 2007, and went to cash or learned to trade the inverse index ETFs have done well. We are now some 6,000 points lower on the $INDU!
Our call to close all index shorts on Friday and begin to nibble on the indices yesterday has been profitable, and we are most fortunate to have caught this part of the move.
As we wrote in Sunday’s “Shrink Rap: Where The Heck Are We?—The Markets And Gold,” the bottom will be recognized in hindsight. We need to see a strong up day on volume and then wait for a follow-through day. That follow-through could come several days later. When it comes, it is likely to be a decent rally that will slog its way up in staircase (not “V”) fashion. This looks likely to be the last chance to get out and ride it up before the next carnage begins—probably sometime in the early part of the third quarter of 2009.
This is one of the emotionally disturbed markets that we have ever seen. Due to the severe nature of the emotional breakdown that these markets have suffered—a prolonged and vicious downward spiral that is sometimes called a nervous breakdown but is best described as a rapid- cycling manic depressive disorder—it will take time to recover.
- Debate Growing Over How Much Fed Should Cut Rates
The recovery will not be rapid, and there may be more pain ahead because of the internal damage that has been done. The markets have suffered severe chronic pain and crashing fatigue. Time is needed to rebalance and restore some degree of internal homeostasis. This the base from which a recovery, albeit for a few weeks to months, can begin.
Janice Dorn, M.D., Ph.D., is a financial psychiatrist and chief global risk strategist for Ingenieux Wealth Management in Sydney, Australia. She also offer trading consulting and coaching services via her Web site, TheTradingDoctor.com.