Bear Market Rally or New Bull Market? Enough Already
All this banter and wild speculation about what to make of our current rally is starting to make my head hurt.
Is it just a bear market rally or is it the start of a new bull market?
I haven’t the slightest opinion and I don’t really care to conjure one up, because at the end of the day, for active long/short traders, it just doesn’t matter.
Warning: this next bit will look a little like shameless self-promotion, but it’s really not…there’s a point (promise).
Below is the combined real-time performance of our programs during the BULL market from 01/2006 (when our results began to be independently-audited) through 10/2007. This is the same data you’ll find updated monthly on our Strategies page.
And below is that same combined real-time performance during the BEAR market from 11/2007 through 04/2009.
See the point? Scary that bear eh?
Over a long enough horizon, an active long/short trader with a well-crafted game plan should excel in any and every market trend be it up, down, or sideways.
We’re not alone and we’re also not bulletproof. There are many, many other traders doing exactly what we’re doing if not better, and we will go through rough patches and take it on the chin in the future (I promise). But the trend I do not fear.
There are only two things that I fear as a trader:
First, monster market volatility. I am both scared shitless of market vol. (read: YK and the catastrophic meltdown in October of 2008) and utterly enamored by it (read: RH and YK and the ridiculous profits in December of 2008).
And second, abnormal markets (a’la October of 2008) that make long divergences from historical norms (which are painful when you trade based on those historical norms).
That’s it. That’s what keeps me awake at night. Everything else? This financial press/blogosphere/water cooler/Uncle Ted’s house speculation about the rally? You can keep it.
Happy Trading,
ms
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Filed under: Random Stuff | 7 Comments
Agreed – but that’s a boring answer that doesn’t require pages of tin-foil-hat-wearing theories about the PPT.
Saw the PPT and tin-foil-hat reference – I thought you were leduc talking about the fly for a second there =)
Agreed, banter and bluster fills airwaves and blog pages.
If you are trading a dynamically-adjusting strategy (I’m thinking YK here), *and* the time constants are short enough so that it doesn’t wait too long to adjust, I would think such a strategy could deal with your ‘abnormal markets’ concern. (I’m sure that’s easier said than done, but it seems feasible conceptually)
More important, I believe, is the other concern about a sudden market meltdown, which I strongly share. I know that in the past you’ve dropped hints that you were working with the guys at Condor Options to come up with a way to address the problem, and every day I read your blog I check to see if this is the day when you’re going to cover this subject, but no luck so far. Care to tell us how things are coming along in this regard?
RE to Carlos: I think the tradeoff is between making such a strategy learn slow enough that it isn’t led astray by noise, but fast enough to catch real changes in the market. IMHO (which is worth as much as this pixel I’m writing it on) is that a program that learns slow enough to not be influenced by noise is never going to adjust to a sharp catastrophic event (i.e. Oct of 2008).
RE: “disaster overlay” – I am the biggest procrastinator you’ll ever meet…ever. Not ready to share anything yet =(
michael
But for many (if not most) market participants, it DOES matter, because they aren’t active long/short traders.
Just playin’ the devil’s advocate…
Thank you for the post. Does that mean that your strategies do not rely on any difference in market/index behavior between bull and bear markets?
I ask only because every day you hear another assertion about how stocks perform in bear vs. bull, and how “this must be a bear rally because,” etc…
So just turning that around…
MS,
Way to go… good post.
In fact, even volatility doesnt scare me, as you are making it out to be,as long as I am on the right side of it :D I just pray everyday that I am not on the wrong side of skyhigh volatility.
You must have seen, the recent 20 or something sigma event of 3 Upper circuits within 3 minutes of trade for Indian markets? I thank :D the powers above, that I was on the right side of it. Otherwise its business as usual :D