The Market Remains Smarter than All

Feb 23, 2009: 4:11 PM CST

Gary Kaltbaum wrote an article for TradingMarkets.com that I wanted to share with you and highlight some of the key quotes and main ideas.

Entitled “The Market Remains Smarter than All,” Kaltbaum explains how calling a bottom – as most traders know but investors do not – in this market has been a fool’s game.  Despite how many times the TV people have used the word “Bottom,” there has been no bottom (yet) and those who have bet on it – or taken the advice of those who proclaimed a bottom – have lost money and wasted opportunities.

Here are a few quotes from Kaltbaum’s article:

The market is smarter than all of them…and very simply, my success in this most brutal of bear markets comes from simply reading the markets.”

Which would imply a “back to basics” approach to trend analysis.

He also shares some insights learned from prior bear markets:

In bear markets, the groups that lead the market down will go down farther than anyone could imagine.”

In bear markets, the market forces the hand and ignores all opinions.”

Companies that lose money will be the biggest losers. Very simply, in bear markets, the curtain comes down on those stocks that do not have earnings”

And when, exactly, does Gary state that a bottom will actually occur?

The final ingredient of a bear market…and especially of a bear market like we are going through now is…and read carefully …WHEN A BEAR MARKET LIKE WHAT WE ARE SEEING ENDS, NO ONE WILL BE CALLING A BOTTOM. NO ONE WILL BELIEVE IT. NO ONE WILL WANT IN.”  (emphasis his)

He shares a few more colorful phrases, but his ideas are solid.  It amazes me how many times I hear the word “bottom” on TV.  I’ve gotten to where I don’t watch the news as much as I used to, but even flipping channels during lunch-time, I hear the word “bottom” more than two or three times in various interviews.  It’s astounding.

Yes, we’ll hit bottom, but it will be when no one (or very few) suspects it but I state that the best play is to stop trying to call it.  Wait for the price on the daily charts – at least (if not weekly charts) – to break above the 20 and/or 50 period moving averages and for price to take out a prior resistance zone and/or prior swing high.  Let the market tip its hand.  Even better, wait for this to happen and for price to support ON one or both moving averages and form a true bottom process where we make a new swing high, drop down to form a higher low, and then TAKE OUT that newly formed higher high.

Bottom formations are a process – they’re not an exact price point.  The 2002-2003 ‘bottom’ occurred in three price swings to the downside that all found support… it took about a year to fully form.  Go back and study it.

Until then, you’re better off flat if you’re a newer investor/trader.  Let the market show strength and prove itself before you step back in… but after all, it’s your decision.

Corey Rosenbloom
Afraid to Trade.com

6 Comments

6 Responses to “The Market Remains Smarter than All”

  1. Dyugle Says:

    Hi Corey
    I was looking at G.TO goldcorp and it looks like it has completed a bottoming process. If I were to enter now would it be prucent to place a stop below the last higher low at $30?
    Thanks

  2. Penny Stocks Trader Says:

    so what do you think, are we going lower or bounce here. market really sucks right now that’s for sure.

  3. David Succaria Says:

    For what it’s worth, my experience has taught me the following lessons. You cannot follow a system unless you are it’s creator and have tested it extensively. When systems suffer their eventual adversity and drawdown period, and they all do, it will tests your metal and “stick to it ness” to no end. To stop trading in these tough times usually always means ending in failure. This is really why the markets are smarter than all, becasue it assures you will be your own failure. To be the developer, quant and creator of a investment or trading system on the other hand is the only way to get this strength. Get yourself a good porfolio level backtesting engine like Amibroker Pro and a high quality historical dataset like from these guys http://www.forextickdata.com and begin your journey.

    Perhaps then you will be smarter than the market. Best of luck.

    David

  4. Corey Rosenbloom Says:

    G.TO probably wouldn’t be a horrible idea, though you’d probably be right to place a stop just beneath $30 which would be well below daily EMA support, beneath round number resistance, and beneath the most recent swing low.

  5. Corey Rosenbloom Says:

    PST,

    I think momentum may take us further into new lows (also completing the 5-Wave Elliott Structure that – until now – was missing its 5th wave).

  6. Corey Rosenbloom Says:

    David,

    Excellent ideas. Thank you for sharing!