Oversold
RSI(14) is a oversold/undersold indicator. I checked RSI(14) is just 17
while 30 is considered to be oversold. Hence, it is extremely oversold on
August 26, 2015. When the Volatile Index is high, institution investors sell
stocks, usually the most profitable stocks first. Usually it takes at least two
weeks to finish all the selling and it creates a panic selling to the retail
investors.
I bought the four stocks described in this Seeking Alpha article:
AAPL, GILD GM and GNW. They did fine in the next two days. They are value
stocks. All the stocks except GNW are in my buy list. I bought them using
market orders just in case they started to surge. At the end of the day they
did not beat the rising market.
No matter what their returns are. They are good bets for me. I do not
want to keep them too long as I still feel the market is risky and the P/E of
SPY is 17 (average is 15). Here is the performance on 8/28/2015. As of this
writing, the holding duration is too short to draw a conclusion. The
annualized returns are more impressive so far. It seems it would not make a big
difference in buying SPY.
Stocks
|
Buy Price
|
Buy Date
|
Return
|
Sell Date
|
AAPL
|
107.20
|
08/26/15
|
4%
|
|
GILD
|
105.94
|
08/26/15
|
2%
|
|
GM
|
27.69
|
08/26/15
|
4%
|
|
GNW
|
4.54
|
08/26/15
|
10%
|
08/27/15
|
OIL, the ETF
I feel OIL is at the bottom. It is easier tracking the down trend (such
as using Simple Moving Average for last 200 sessions) than detecting the
bottom. I bought it two times on 08/24/2015. I will keep them longer as I feel
they are close to the bottom. It could be the lowest price adjusted after inflation
for a long while. As of 8/29/15, the return is 20%. Click here
for proofs that I bought OIL.
Flash plunge
Dow lost a thousand points in a year. We should have some buy orders with
about 10% less than the current market prices to take advantage of these
plunges. Check your buy list. Eliminate the stocks that have risen faster than
SPY.
It is not that risky as expected if the stocks are highly valued even during
market plunges. This also reminds us that stop orders would sell them at prices
too low. I ignored the 10% drop during the day for my mental health. The better
way is to buy value stocks during the irrational free fall, but it takes a lot
of courage.
For some reason that has not been really explained, the ETFs lose far
more than the stocks within the ETF. On -8/24/2015, S&P 500 fell about 5%
while IVV fell about 25%. To take advantage of this, we should place buy orders
on ETFs at lower prices during the plunge.
Market timing
My readers of my books including Profit from 2016 Market Crash should
prepare better if they followed the techniques in the book to detect market
plunges. I had about 50% in cash (should be more if I followed my own chart)
before the August correction. Short-term bonds such as VFSTX and FSHBX may be
used to park your cash.
The market plunged very fast. It is probably due to too many followers of
technical indicators and VIX (the Volatility Index). I may have to derive one for giving us signals
before the herd. However, it could give us false signals more often. Contrary
to previous plunges, the economy is humming, so we may not be in bear territory
as suggested by many.
When there is a correction (15% or less), we buy. When there is a market
plunge (25% or more), we sell. There is a gray area from 15% to 25%. I guess it
is a fierce correction, but only time can confirm.
With this fierce correction, the chance of a market plunge is reduced and
the government may not want to raise the interest rate at least not too fast.
----
My books related to the topic. Click the links for more information.
The Themes in Investing. More info on my trading experiences and the techniques behind.
Profit from 2016 Market Crash. How to prepare and why the market is risky.
The Art of Investing. Kindle version is over 700 pages (about 3 books of average size) and it covers most topics in investing.
