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Bear Market Rally?
Old 05-04-2009, 05:02 AM   #1
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Bear Market Rally?

According to this graph, the average bear market rally during the depresssion lasted 70 days and saw the market rise 30%.


We're almost there.


How Long Bear-Market Rallies Last
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Old 05-04-2009, 09:33 AM   #2
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Many reasons to think that this is merely a bear market rally. But what to do?

In my case, I have quite a bit more in taxable accounts than tax deferred. I have no capital loss carryovers. All my gains are short term, all my unrealized losses long term.

Do I sell and take profits, and pay CG tax? To I buy an inverse ETF? Or do I just hang on?

I can't decide.

Ha
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Old 05-04-2009, 09:41 AM   #3
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Quote:
Originally Posted by haha View Post
Many reasons to think that this is merely a bear market rally. But what to do?

In my case, I have quite a bit more in taxable accounts than tax deferred. I have no capital loss carryovers. All my gains are short term, all my unrealized losses long term.

Do I sell and take profits, and pay CG tax? To I buy an inverse ETF? Or do I just hang on?

I can't decide.

Ha
You could ponder the quote from an old railroad baron back in the day:

"Fortunes have been made by Selling too SOON"...........
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Old 05-04-2009, 09:52 AM   #4
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Quote:
Originally Posted by haha View Post
Many reasons to think that this is merely a bear market rally. But what to do?

In my case, I have quite a bit more in taxable accounts than tax deferred. I have no capital loss carryovers. All my gains are short term, all my unrealized losses long term.

Do I sell and take profits, and pay CG tax? To I buy an inverse ETF? Or do I just hang on?

I can't decide.

Ha
But you can realize some long term losses and offset the long term loss against the short term gain.
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Old 05-04-2009, 10:22 AM   #5
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"Sell in May and go away"?
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Old 05-04-2009, 10:25 AM   #6
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Originally Posted by Maurice View Post
According to this graph, the average bear market rally during the depresssion lasted 70 days and saw the market rise 30%.


We're almost there.
My best guess is that the stimulus and bailouts will work temporarily and lift the economy out of recession. The market is anticipating this and will continue to rise until fear takes over again. We will continue between fear and greed until this bear market is over (around 2020) and a new crop of suckers come along to be fleeced.

I plan to adjust my asset allocation when the market goes overboard on greed.
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Old 05-04-2009, 10:33 AM   #7
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But you can realize some long term losses and offset the long term loss against the short term gain.
I didn't realize this. Opens a whole new vista of possibilities. Thanks Martha. BTW, I guess you are feeling better from your flu?

Ha
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Old 05-04-2009, 10:39 AM   #8
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Originally Posted by Bestwifeever View Post
"Sell in May and go away"?
..or not:

Don't Go Away; Stay In May
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Old 05-04-2009, 10:46 AM   #9
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Hmmm. Hmmmm. Hmmmm.

Sure glad I went full auto in Jan 2006 with Target 2015 and annual deduct to MM.

Oh - now those Norwegian widow stocks over on the side? Thinking wait til football season and stir the hormones all at once.

May or not to May - whether it is nobler to go out back and garden or or or??

heh heh heh -
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Old 05-04-2009, 10:46 AM   #10
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Originally Posted by haha View Post
Many reasons to think that this is merely a bear market rally. But what to do?

In my case, I have quite a bit more in taxable accounts than tax deferred. I have no capital loss carryovers. All my gains are short term, all my unrealized losses long term.

Do I sell and take profits, and pay CG tax? To I buy an inverse ETF? Or do I just hang on?

I can't decide.

Ha
What will affect you more, losing portfolio value if equities decline or having insufficient purchasing power if your portfolio doesn’t grow fast enough?
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Old 05-04-2009, 11:03 AM   #11
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I didn't realize this. Opens a whole new vista of possibilities. Thanks Martha. BTW, I guess you are feeling better from your flu?

Ha
I am well enough to sit up but not much else.

The two IRS publications are Publication 550 (2008), Investment Income and Expenses
and Publication 544 (2008), Sales and Other Dispositions of Assets
You must first match each type of loss to offset the same type of gain: long-term losses against long-term gains, short-term losses against short-term gains. After that, you can use any leftover losses first to offset current long-term gains and then to offset short-term gains. Finally, any remaining losses can be used to offset $3,000 of this year's ordinary income.
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Old 05-04-2009, 11:27 AM   #12
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Its different this time.
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Old 05-04-2009, 01:29 PM   #13
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Hussman Funds - Weekly Market Comment: Comfortable with Uncertainty - May 4, 2009

"In his book On Being Certain, neurologist Robert A. Burton quotes F. Scott Fitzgerald – “The test of a first rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.” Buddhist teacher Pema Chodron calls it “being comfortable with uncertainty” – being willing to take every aspect of reality as the starting point, without wasting energy wishing things were different, without denying reality as it is (even if your next step is to work toward changing things), and without needing to know what will happen in the future. “The truth you believe and cling to makes you unavailable to hear anything new. The best thing we can do for ourselves is to be open to an unknown future.”"

Ha
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Old 05-04-2009, 04:22 PM   #14
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John Hussman is one of my favorites. I actually spent yesterday going through a bunch of weekly market comments. He is remaining defensive, as he believes that it is a bear market rally. Buffet is saying that there is still plenty out there that it is cheap and he still is buying. I personally think that people that have a lot in right now should profit take a very small portion and use that to hedge there positions to an underlying index for a pull back. I do believe there will be a pull back, I just can't tell if it will be one that isn't that major(all but solidifying a bull market) or if it will retreat all the gains back(signaling that this was a bear market rally). I would bet on the latter because its always better to be early than late.
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Old 05-04-2009, 04:23 PM   #15
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I would actually use put options as the hedge since they are cheap. More hedge for the buck.
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Old 05-04-2009, 06:23 PM   #16
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I would actually use put options as the hedge since they are cheap. More hedge for the buck.
Personally, I think the market has advanced too far too fast. There is still a lot of bad economic news to come, including undoubtedly somethings we haven't anticipated.

I sold a bit in this rally and wrote covered calls on my bank stocks that have stopped paying dividends. Buffett said so many wonderful things about Wells Fargo this weekend that I knew it was going up today.

I don't understand why you say puts are cheap? The VIX is about 35 which is low only when compared to the last 8 months in the of the market. As example, an at the money June 90 put on SPY is $4 or $9.25 for a Dec 90 which is 16% on an annualized basis
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Old 05-04-2009, 06:49 PM   #17
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I completely agree that they aren't cheap from a historical perspective. What I meant was that they were cheap relative the recent history(your comment about last 8 months). Its also cheap relative to actually holding the short. As a hedge the put just affords me more protection, and if it doesn't need to be exercised fine, that means my portfolio held up and most likely the rally will be sustained. If the market retreats significantly the VIX will rise giving me both a return on the decline plus a little extra for in an increase in volatility.
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Old 05-04-2009, 07:38 PM   #18
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I don't understand why the market is going up because the inflows are negative for the month of april.
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Old 05-04-2009, 07:45 PM   #19
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There is postive news coming in along the lines of it is getting less bad, but the fact that the data that is coming in is still bleak, and the fact that more than 80% of stocks are above their 50 day moving average shows that there should be a market correction. The depth of that correction will be a very big deciding factor for me in determining where we are at. Keep in mind that after dot.com the market should have retreated much farther to be in line with physical earnings. Whether a repeat is going to happen is anybody's guess.

Many people are alluding to the idea that inflows are rushing in the last several days. Traders and hedgefunds were a big part of april. Hedge fund guys started moving off of their defensive and hedged positions and moving into the market. Traders were doing a lot of the same. Money from average joes to mutual funds are bound to come in later. Its going to suck for those average joes when they move in last week and this week and a bunch of traders profit take and another pull back ensues.
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Old 05-04-2009, 08:22 PM   #20
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[quote=haha;812530]Hussman Funds - Weekly Market Comment: Comfortable with Uncertainty - May 4, 2009

"In his book On Being Certain, neurologist Robert A. Burton quotes F. Scott Fitzgerald – “The test of a first rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.” Buddhist teacher Pema Chodron calls it “being comfortable with uncertainty” – being willing to take every aspect of reality as the starting point, without wasting energy wishing things were different, without denying reality as it is (even if your next step is to work toward changing things), and without needing to know what will happen in the future. “The truth you believe and cling to makes you unavailable to hear anything new. The best thing we can do for ourselves is to be open to an unknown future.”"

I have not nor possibly never will achieve that Boglehead - Buddhist like - 'don't know don't care' posted on that forum by some. But with 85% in a lifecycle fund - I permit myself:

Let the Saint's go marching in - Superbowl this year for sure. But then I remember Lucy snatching that football away from Charlie Brown at the last minute after she suckers him in - every year.

The Norwegian widow has her 15% stash - it only takes one or a few good stocks.

heh heh heh - if I feel I'm getting too optimistic - Bernstein's '15 Stock Diversification Myth' lurks on Google to steady me down.
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