This crash was artificially strung out from the government bailouts. It had to happen sooner or later anyway, so perhaps the government should have just stayed on the sidelines and let the markets work everything out. Who knows if we would be worse off, but based on what the market is saying, it doesn't matter.
Both the Three and Four Sigma Systems, as you might expect, are in the negative at the moment as their picks are deep in the red. As I stated in the earlier blog post, a prudent person may not be trading at this point with the market the way it is, but we let the system buy and hold its picks. This is a toxic environment for any long trading system with the VIX trading at over 3 standard deviations above the mean, and the Dow trading at 5 standard deviations below the mean; OUCH!
The VIX is the highest it has been since 1987 which is indicative of a "crash". Although we did not see this crash happen all in one day, it has been happening over the process of a week. Overall, this is going to be very good for the market to sweep out the very weak stocks and the weak players in the market. Over the next three to five years, we are going to be in for an interesting, and I think rising, market. Typically after a severe crash like we've had, the market slowly rebounds and the bears go away for a while.
The Four Sigma Systems perform extremely well after a bear market, sometimes seeing average gains over 100%. This is because it trades the stronger stocks that are gaining momentum and getting a lot of attention. I'm looking forward to seeing how this plays out and I'm looking forward to some very nice profits over the next few years.
Once we do reach a bottom and the market becomes sane again, the system will probably end up picking a lot of stocks over a short period of time. A majority of these stocks will be winners, but we still want to concentrate on the stocks with good fundamentals.
It should be interesting to see what happens next week. If history is any indication of the future (which, of course, is never guaranteed), then we will see a small rally, then retest the bottom before a prolonged bull run. Only time will tell. In the meantime, get your fedora and I'll see you in the bread lines.
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