Stock Market Prediction: March 17

Let me tell you what I think about the market. I think we are in a bear market, everyone who says otherwise is in denial. A bear market takes time to resolve itself (typically 2 years to reach the bottom). Let us assume that the bottom for the market, as a whole, is 50% from the the latest top.

If I take IWM (russell 200 ETF which the one I mainly trade), the all time top was around 85 something. 50% of that is around 43. We have go down about 25% from the top. This took place in around 6 months. This is in accordance with the behaviour of the stock market price, that is half the move happens in a quarter of the time (25% in 6 months which is 1/4 of 2 years).

So the first leg of the bear market is done. There will still be legs 2 and 3 (3 being the final one, and in which there is the absolute surrender of the champions of all backholders). Those legs should take place over the next 18 months.

As I believed from last Monday, I think we are at a short term bottom. The reward of the short is not worth the risk. That is why (see the live trades) I closed all my shorts, and built a small long position, which I closed on the close of Tuesday. I did some shorting on Wednesday (see my live thread of trades on Wednesday March 12?).

The behaviour of the market on Friday is in my view very strong. I took note of the high volatility (not of the OTM puts), but the high volatility of the OTM calls on IWM. Implied volatility is real money, and I cannot ignore it.

Currently, I recovered my shorts of Wednesday on morning Thursday, and I am currently on the sideline waiting to see what happens.

If I have to make a prediction, I would see range bound and possibly an upmove to 70 for IWM in the near future. As for the short case, I will not short now until I see a bounce up that would make the reward to risk ratio appealing.

Good trading!

Contributor: Chabillion