The question that might be on many people's mind: where is a bottom for this market? Let us try to answer that question.

We know that a bear market eliminates any prices that are not build on real-strength.
A bear market essentially cleans a system from its wrongs, and determines the rock bottom.

The last bear ended in March 03. The prices to remember from that bear market are:

1. The price at which the bears were defeated by the bulls was at the level of 8500 for the DOW (you can go back and find the numbers for the SP500, and Nasdaq).

2. The bottoming area was between DOW 7500 and DOW 8500.

3. The hardest layer among the rocks of that bottom were in the area DOW 700 to DOW 7500.

Now some remarks in relation to today's prices:

1. Dow is JUST 70 points from the area where bears were defeated by the bulls at the start of the lastest bull market.

2. The market today closed at 8570. We are, at worst, just 10% away from the hardest layer among the hard rocks of the previous bear market.


Conclusion:

1. From the above we are concluding that for a long term investor, this is the time to start getting in.

2. I would focus only on buying segments of the market (not individual stocks).

3. I would also focus on dividends to allow for compounding, and/or collect income by selling calls.

4. I would consider selling calls on my holdings as stated above. This should be lucrative as volatility is at historical highs.

5. If I were too scared, I would start by selling leaps at strikes 700 (for DOW). You would have a great rate of return on these leaps, and if market were to fall, you lower your buying point significantly.

Our conclusion is: from the level at which DOW closed today, we have a historic buying opportunity, at levels that have been tested by the previous bear market.

If the levels of the previous bear market do not hold, then we are heading for more serious trouble that any reasonable analysis can predict. But there is always risk, we believe that the probs, the risk/reward ratios, the dividends, the call premiums are on the side of the investor.

In any case, one should scale in. My worries now at the market may run away from me tomorrow, and as my retirement account allows me only to buy at close, this opportunity may slip from my hand.

To your profits,

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1 comments

  1. Anonymous  

    December 22, 2008 at 7:22 PM

    Bailout 2008, a poem by David Jeffrey

    Like a bloodied warrior,
    laying broken and torn.

    Like a dying soldier, hopeless and forlorn.

    But the blood, it be green,
    the color of money.

    And the soldier is an economy,
    and it is anything but funny.

    Broken are it's people and shattered are their dreams.

    Thanks to the ultra rich and their full proof schemes.

    It is a tragedy with more pain to come.

    Finance will be Hell, and their wills will be done.

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