Market Bottom?

I’ve had several folks ask me if we are at the market bottom… both in person and by email.  I’ll do my best to answer these questions.

I’ll start with disclaimer and an opinion.   The disclaimer is that I’m only about 50-60% confident in the following prediction.  The opinion is YES, we we at or very near the bottom on Friday with an inter-day S&P 500 level of about 844.

Here’s what I’ve done so far this week.  I bought 100 shares of SPY (SP500 ETF) Monday on the market open for $94.47 per share.  [BTW, this was a poor price for a market order place on the open… I think it should have cost me closer to $94.10 per share. I’ll have to talk to my online broker about the poor order execution.]    As of tonight I am up 5.57% on that purchase.  Secondly I wrote a covered Nov 102 SPY call Monday afternoon for $465.  These trades in my “play-money” account show me suddenly being a bit bullish, with the call write showing a bit of light hedging.

I might as well get specific about my play money account.  It started at about ~$17K in early 2005.  My oldest exact data shows was it was worth  $21,077  on Jan 1,2007.  As of today it is valued at $22,148.  Since I don’t add or subtract money from this IRA account it will be interesting to see how it fares in the months and years ahead 🙂

I feel compelled to note the VIX which hit a historic high on Friday of over 75.   Commonly called the fear index, the VIX measures the implied volatility inherent in the prices of S&P500 options.  The VIX was about 60 when I wrote my SPY call Monday afternoon.  The high VIX value meant I was getting pretty good “time-value” premium for my option.  The fact that I held SPY and wrote a slightly out-of-the-money call implied that I was slightly bullish on the S&P 500 for the next month.

So, yes, I believe that we are near a bottom.  Getting into the S&P500 for around 1000 (SPY for around 100) seems reasonable.  I’m doing so with my risk capital, but I’m hardly altering my larger accounts… neither doing much re-balancing nor changing my contribution elections.  I continue to max out my 401(k) contribution for the year (no change for the last 10 years… I always try to max) and I’ll max out my IRA contribution for 2008 (in 2009) before April 15 as I do my taxes next year.
Happy hunting!

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