Well, it didn't take very long for bailout talks to surface after my previous post which caused the market to snap back immediately in anticipation only to give it back today. This type of volatility is what you see near market turning points. Apparently, we should have a bailout come Monday for Greece but I'm wondering what about the other PIIGS?
On Feb 5th the day the market hit bottom I referenced something that was said by the "Rev Shark", a trader who has a column on realmoney.com. Here's what he said...
"Assume the worst. The safest play here is to look for more downside".
I suggested comments like when the market is at extreme ST oversold conditions is indicative of what you see near the end of corrections. It just so happened the market bottomed that day!
Now, after fighting the market tooth and nail with repeated top calls the Rev Shark has come full circle. Here's what he said this morning
"What More Can I Say?
This trend seems unstoppable -- calling tops is a fool's game.
Well, I'm going to say the mirror opposite of what I said Feb 5th...these type of emotional comments in the face of such chronic overbought conditions are what you see near TOPS! But don't think for a second the "Rev Shark" has fully embraced the bull side. He is a fickle character and deep down inside like most trader types these days, he has little conviction on the bull side and feels more comfortable being bearish. All it will take is a 2-3% drop and these jokers will be running for the hills again. Actually, I just noticed his comment at the close was "tighten up on defense". You see what I mean! lol! The butt sniffers who play the long side are quick to run for the hills at the first hint of red.
So, given the warning signs of a top should you should go short here? It's always tempting to bet on a counter trend move after the market has made a strong run and I've warned repeatedly about doing so. Amateurs often do this and they often do so out of "revenge" for missing out on the move. I've seen many traders get destroyed doing this. Don't ever engage in such "revenge trading" of any sort. If you miss a move get over it and get over it fast. Don't bet the other way and don't "double down" on your next trade out of revenge. The market is not going away...there will always be another wave to ride.
I have made a personal vow to never top pick a bull market trend betting on a correction unless the setup is absolutely perfect and even then I wouldn't be betting much. How many times since April did it look like the market was ripe for a correction only for it to dip slightly and then head back up?...tons. I've learned the hard way many years ago that if you only trade/invest in the direction of the primary trend and resist betting on counter trend moves no matter how tempting, you will be a lot more successful and keep yourself out of trouble. So, if cautious in the ST I raise cash typically by eliminating/reducing positions that have not lived up to my expectations....this is what I've been doing. The worst that happens is that you miss out on same gains. Going with a short as a partial hedge is OK so long as you aren't over doing it.
Looking at the chart of the market it does indeed look toppy but if the market is true to form it's going to frustrate the hell out of as many people as possible first before going down in a sustainable way. Have we reached that point? I think we’re just about there if not there already. I still wouldn't rule out a head fake higher from here to create maximum frustration. Keep an eye on the NASDAQ. If it shows relative weakness on any bounce attempts it would be a warning sign of a head fake.
We are also going to start hearing a loud chorus of "Sell and May and go away". I don't buy into this shit nor am I a big fan of seasonality simply because it doesn't work on a consistent basis. Sure, you will hear about the statistics which show that from 1950 to present day the market hardly returns anything from May-November but that could be nothing more than a coincidence, more importantly, this theory has been rather inconsistent for the past 10 years or so. Selling in May and going away last year for example would have made you miss an 18% gain in the market. If you look at the previous bull market from 2003-2007 the average May-November return in the SPX was about 5.3%. Mind you this average is heavily influenced by 2003's May-November gain of 15% but the other years although returning a lot less weren't ever negative.
Selling and May and going away might actually turn out to be an OK idea this year not because of some magical force of seasonality but because we've had such a strong run in the market. But I don't think the market will be lower than current levels come November....I think it will be marginally higher with some sort of scare in the market either now or in the summer that sends it lower first. Sell in May and go away until July or August might turn out to be the best strategy. This is of course all guess work. For me, I follow the indicators and sentiment and largely ignore seasonality shit like this "sell in May and go away”. But I gotta say, one seasonality pattern that I find actually works in bull market conditions is the November to early January period.
Speaking of going away in May, I will be doing so with this blog...but not until November. The wife is really on my case for not getting things done around the house and in order for me to keep her happy and be able to do DD on companies I’m tracking I need to cut back on doing other things and blogging is one of them.
Friday, April 30, 2010
Tuesday, April 27, 2010
PIIGS part 2
I know I said I wasn't going to post for a while but I had to chime in based up today's action. The market now appears to be focused on the widening of credit spreads of all the PIIGS not just Greece. Although this was happening well before today, Moody's downgrade of Greece debt to junk may have been the straw that broke the camels back so to speak.
Unlike the GS fraud news which I felt was a weak excuse for a correction, these contagion concerns in Europe is indeed a decent excuse for a correction...not a bull market killer but a correction. It seems apparent to me that a bailout of all PIGs is going to be required...and it will happen. People talk about moral hazard this and moral hazard that but after the collapse in 2008 which was triggered by letting Lehman fail i.e. doing nothing governments aren't going to opt for doing nothing. And governments have also realized that bailouts can in fact work. The US government's investments in Citigroup and GS for example not only were successful but profitable.
So what happens now? Well, when you see the market get slammed like today and close at the lows it's likely that the selling isn’t done yet even if there's some sort of bounce attempt tomorrow which I wouldn't be too keen betting on especially if it happens first thing at the open. Now, if the market senses some sort of blanket rescue package for PIGS is imminent then this thesis would likely be invalidated and a strong rally recouping today's downside move would be likely the result.
I noticed today, just like with every other correction, the same wrong way loser retail traders who since last spring have been mauled by this market with repeated shorting attempts get euphoric on days like today. It tells me that the bull market is still in tact and that these clowns STILL haven't learned their lesson and need to be punished again. But the funny thing is that when these clowns happen to actually win one on the short side, they cover too early missing out on at least half of the decline.
The VIX has spiked massively today already on its way to hitting overbought on the RSI but it's likely to go up a little more and there likely needs to be a string of high pcrs as well. Today's pcr was quite low considering the damage.
Contagion fears have in the past rattled markets such as the 1997 Asian contagion. But these are not bull market killers and they are eventually dealt with via a bailout of some sorts. 90% of the times the bull market killer is tight money supply during a time when excesses have been building up in the economy i.e. greed. We don't have either whatsoever right now.
Bottom line: Until some sort of blanket bailout package for PIIGS is announced or is suspected, be on the defensive here in the ST. But LT investors shouldn't be concerned so long as you can sleep at night with your exposure. Remember, in the end it's always about earnings and problems with small countires like Greece and and Portugal aren't likely going to derail the strong trend in earnings going on right now.
Unlike the GS fraud news which I felt was a weak excuse for a correction, these contagion concerns in Europe is indeed a decent excuse for a correction...not a bull market killer but a correction. It seems apparent to me that a bailout of all PIGs is going to be required...and it will happen. People talk about moral hazard this and moral hazard that but after the collapse in 2008 which was triggered by letting Lehman fail i.e. doing nothing governments aren't going to opt for doing nothing. And governments have also realized that bailouts can in fact work. The US government's investments in Citigroup and GS for example not only were successful but profitable.
So what happens now? Well, when you see the market get slammed like today and close at the lows it's likely that the selling isn’t done yet even if there's some sort of bounce attempt tomorrow which I wouldn't be too keen betting on especially if it happens first thing at the open. Now, if the market senses some sort of blanket rescue package for PIGS is imminent then this thesis would likely be invalidated and a strong rally recouping today's downside move would be likely the result.
I noticed today, just like with every other correction, the same wrong way loser retail traders who since last spring have been mauled by this market with repeated shorting attempts get euphoric on days like today. It tells me that the bull market is still in tact and that these clowns STILL haven't learned their lesson and need to be punished again. But the funny thing is that when these clowns happen to actually win one on the short side, they cover too early missing out on at least half of the decline.
The VIX has spiked massively today already on its way to hitting overbought on the RSI but it's likely to go up a little more and there likely needs to be a string of high pcrs as well. Today's pcr was quite low considering the damage.
Contagion fears have in the past rattled markets such as the 1997 Asian contagion. But these are not bull market killers and they are eventually dealt with via a bailout of some sorts. 90% of the times the bull market killer is tight money supply during a time when excesses have been building up in the economy i.e. greed. We don't have either whatsoever right now.
Bottom line: Until some sort of blanket bailout package for PIIGS is announced or is suspected, be on the defensive here in the ST. But LT investors shouldn't be concerned so long as you can sleep at night with your exposure. Remember, in the end it's always about earnings and problems with small countires like Greece and and Portugal aren't likely going to derail the strong trend in earnings going on right now.
Things people aren't talking about
While so many people continue to scoff as this historic bull market run mindlessly dismissing it as a function of manipulation via the "PPT" few people have noticed or failed to acknowledge out of denial the following
1. The prices of "toxic assets" i.e. mortgage securities have been rising sharply
2. Current 12 month forward earnings estimates by analyst for the SPX is $83.5 which if becomes a reality would be the 2nd highest level of earnings recorded ($87.7 was the record for the year of 2006) Now I know what you’re thinking....who is to say these analysts will be correct in their forecasts especially given their track records. Well, as I've said before, during expansions analysts tend to constantly underestimate earnings and during contractions tend to overestimate them. Therefore, if anything, the $83.5 estimate will prove too conservative!
3. The retail index as measured by the RLX is only about 8% away from making an ALL TIME HIGH! Yet everyone is talking about how the consumer is dead.
4. The home builders index (XHB) has broken out of a multi-month base.
5. Leading indicators have been rising for 12 straight months.
The losers I all track keep griping about the PPT, how the market is rigged, how this run has been on low volume and how Main Street is still in such bad shape. I tend to see a lot of people scratching their head saying "what has changed?”. Well, you can go ahead and believe what these losers believe, you can go ahead and make your investment decisions based upon what see on main street or you can listen to the stock market and other leading indicators which are yelling and screaming that things are about to get better in a big way which few people it seems want to listen. So many people seem to refuse to believe that times can actually be good again. Everyone is so wrapped up in negativity. All the stock market communities whether it's seeking alpha, yahoo, or marketwatch continue to exhibit overwhelming negativity from the joe blows that post messages and they all believe in the same fucking stupid notions of this "PPT". To all you PPT believers out there...if there is such a PPT and if the market is so rigged to only go up how do you explain the greatest collapse in 70 years that took place 2 years ago? Where was the PPT then? What a bunch of fucking pathetic losers. What a nation of permabears we live in. It's so amazing how people went from believing in a "new era" of permanent prosperity 10 years ago to becoming miserable, bitter, negative news craving SOBs who are actually rooting for economy to collapse and are oblivious to all the evidence around them that the skies are going to be brighten up soon.
Last year was bizzaro 2000. This year it's bizzaro 2001.
I really need to take some time off from blogging because I'm behind in my research and it's been frustrating watching some stocks I had on my radar take off without me because I didn't do enough DD to pull the trigger.
This might be my last post for a while
1. The prices of "toxic assets" i.e. mortgage securities have been rising sharply
2. Current 12 month forward earnings estimates by analyst for the SPX is $83.5 which if becomes a reality would be the 2nd highest level of earnings recorded ($87.7 was the record for the year of 2006) Now I know what you’re thinking....who is to say these analysts will be correct in their forecasts especially given their track records. Well, as I've said before, during expansions analysts tend to constantly underestimate earnings and during contractions tend to overestimate them. Therefore, if anything, the $83.5 estimate will prove too conservative!
3. The retail index as measured by the RLX is only about 8% away from making an ALL TIME HIGH! Yet everyone is talking about how the consumer is dead.
4. The home builders index (XHB) has broken out of a multi-month base.
5. Leading indicators have been rising for 12 straight months.
The losers I all track keep griping about the PPT, how the market is rigged, how this run has been on low volume and how Main Street is still in such bad shape. I tend to see a lot of people scratching their head saying "what has changed?”. Well, you can go ahead and believe what these losers believe, you can go ahead and make your investment decisions based upon what see on main street or you can listen to the stock market and other leading indicators which are yelling and screaming that things are about to get better in a big way which few people it seems want to listen. So many people seem to refuse to believe that times can actually be good again. Everyone is so wrapped up in negativity. All the stock market communities whether it's seeking alpha, yahoo, or marketwatch continue to exhibit overwhelming negativity from the joe blows that post messages and they all believe in the same fucking stupid notions of this "PPT". To all you PPT believers out there...if there is such a PPT and if the market is so rigged to only go up how do you explain the greatest collapse in 70 years that took place 2 years ago? Where was the PPT then? What a bunch of fucking pathetic losers. What a nation of permabears we live in. It's so amazing how people went from believing in a "new era" of permanent prosperity 10 years ago to becoming miserable, bitter, negative news craving SOBs who are actually rooting for economy to collapse and are oblivious to all the evidence around them that the skies are going to be brighten up soon.
Last year was bizzaro 2000. This year it's bizzaro 2001.
I really need to take some time off from blogging because I'm behind in my research and it's been frustrating watching some stocks I had on my radar take off without me because I didn't do enough DD to pull the trigger.
This might be my last post for a while
Friday, April 23, 2010
AAII sentiment behavior guarentees bull market far from over correction or no correction
Stubborn, ingrained, perpetual skepticism. This is the message being conveyed from AAII sentiment for the past 13 months. This week's reading came in at 1.16 bulls vs. bears. Despite the fact that DOW 11K and SPX 1200 were captured, despite an 80%, 13th month rally from the bottom the little guy as represented by AAII refuses to embrace the bull market and gets scared off by just 1 marginal down day.
It continues to be the case that for any kind of bullishness to build up in AAII, the market has to climb mountains but when the market takes a baby step or 2 backward that bullish sentiment rapidly disappears. That's wall of worry behavior folks and still indicates we are stage 1 of this bull market. Only 1 time, just 1, since March 2009 did sentiment hit a 2:1 ratio of bulls vs. bears and that happened in late December last year and just a single reading of 2:1 is by no means a bull killer. During the last bull market from 2003-2007 a 2:1 reading happened several times especially from mid to late 2003. In fact, AAII sentiment hit 6:1 bulls vs. bears by early 2004! And even despite this off the charts reading the market didn't fall apart afterwards...it simply consolidated for a few months with a maximum drawdown of 10% before hitting new highs by the year end. The same sort of behavior occurred in the bear market. There were plenty of times where the ratio hit 2:1 bears vs. bulls or more and yet further significant downside occured after perhaps a bear market rally or 2.
Given that there has been only 1 time where the bull to bear ratio hit 2:1 since this powerful bull market started it's practically guaranteed that it's nowhere close to being over. Looking back at the 2003-2007 bull market there's got to be at least 20 times where the ratio hit 2:1 or more. During the bull market of 1990-2000 it happened at least 60 times!
As far as current market action goes, I get the feeling based upon anecdotes it seems like bulls and bears alike are looking for a correction so we got ourselves a watched pot syndrome here. Despite low pcrs last week during options expiration (making distortions more likely) they have been quick to firm up on just marginal weakness in the market but so far today they are low again. It's a very fickle indicator the pcr is. When enough people drop their guard we'll get a correction. It's always difficult to know exactly when that happens. If I get a good sense of it, I'll mention in. Right now I don't.
With earnings surging like they have been for several months now, it's just a matter of time before we start seeing a surge in payrolls and that could usher in a wave of capitulation from the skeptics who are calling this a "jobless recovery".
By the way, this same "jobless recovery" mantra we are hearing is what people said after the 1990 recession and the previous recession. Eventually the jobs did come. That's why it's a lagging indicator.
Newbie bears are learning this the hard way.
It continues to be the case that for any kind of bullishness to build up in AAII, the market has to climb mountains but when the market takes a baby step or 2 backward that bullish sentiment rapidly disappears. That's wall of worry behavior folks and still indicates we are stage 1 of this bull market. Only 1 time, just 1, since March 2009 did sentiment hit a 2:1 ratio of bulls vs. bears and that happened in late December last year and just a single reading of 2:1 is by no means a bull killer. During the last bull market from 2003-2007 a 2:1 reading happened several times especially from mid to late 2003. In fact, AAII sentiment hit 6:1 bulls vs. bears by early 2004! And even despite this off the charts reading the market didn't fall apart afterwards...it simply consolidated for a few months with a maximum drawdown of 10% before hitting new highs by the year end. The same sort of behavior occurred in the bear market. There were plenty of times where the ratio hit 2:1 bears vs. bulls or more and yet further significant downside occured after perhaps a bear market rally or 2.
Given that there has been only 1 time where the bull to bear ratio hit 2:1 since this powerful bull market started it's practically guaranteed that it's nowhere close to being over. Looking back at the 2003-2007 bull market there's got to be at least 20 times where the ratio hit 2:1 or more. During the bull market of 1990-2000 it happened at least 60 times!
As far as current market action goes, I get the feeling based upon anecdotes it seems like bulls and bears alike are looking for a correction so we got ourselves a watched pot syndrome here. Despite low pcrs last week during options expiration (making distortions more likely) they have been quick to firm up on just marginal weakness in the market but so far today they are low again. It's a very fickle indicator the pcr is. When enough people drop their guard we'll get a correction. It's always difficult to know exactly when that happens. If I get a good sense of it, I'll mention in. Right now I don't.
With earnings surging like they have been for several months now, it's just a matter of time before we start seeing a surge in payrolls and that could usher in a wave of capitulation from the skeptics who are calling this a "jobless recovery".
By the way, this same "jobless recovery" mantra we are hearing is what people said after the 1990 recession and the previous recession. Eventually the jobs did come. That's why it's a lagging indicator.
Newbie bears are learning this the hard way.
Saturday, April 17, 2010
GS fraud charges a weak excuse for a sell off
Friday's sell-off was mainly attributed to the news that GS is being charged by the SEC for fraud relating to its dealings with mortgage securities 3+ years ago. There was also disappointing news from Google and it was option expiration day which I have noticed lately, tends to be a down day. Combine all this with an overbought market it's not really a surprise to see a decent down day which I was expecting sooner or later.
Now, the question is, is this GS news the catalyst that sparks the next correction? I have my doubts unless we start seeing other charges made to other large players and even if that happens something like this is not a bull market killer...this excuse would be weaker than the ones that sparked previous corrections.
If the high of this move from Feb is in it's quite likely that there will be at least 1 week of topping behavior which suggests a run back at those highs.
I don't even know why I talk about these little wiggles in the market when I don't even play the indices anymore...it's more like a sideshow for me. Instead, I continue to focus on individual names and although I have a large cash position right now due to the sale of some winners, I'm still riding some a few names. GDC.to is one that has done very well for me this year and this week it had a nice breakout to new highs on good news. I expect this one to hit at least $6.
I was looking at the 5 years chart of the NASDAQ and noticed that it's only about 15% away from surpassing the previous bull market peak in 2007! The retail index as measured by the RLX is also in the same situation! Yet all we hear in the media is "new normal" and "consumer deleveraging". Folks, the stock market is sending a very powerful message here that so many people simply refuse to believe....it's saying the sky is about to get a lot brighter in the months ahead. Eventually though, I still believe we are going to get a multi-month period of choppiness. Coming into the year I made a post saying that based up history, after the first 10-14 months of the start of a new bull market you tend to see a multi-month choppy consolidation period. We are now in month 13. Of course, there's no law that says we have to see such a consolidation period but odds suggest we will. But if you try to time all the ST peaks and valleys of a bull market you WILL eventually get left behind and I'm sure it has happened to a lot of bulls already. That doesn't mean you shouldn't ever take profits...nothing is the game is certain and you need to ensure that you will live to see another day...but you need to have some conviction and courage to keep a LT position at all times if you want to make big money in a bull market. Very few people do this.
The dual nasty bear markets of the 2000’s have left so many investors permanently scarred especially the 2008 collapse which was the worst collapse since 1929-1932. I believe it will take a new generation of investors who don't have such bad memories before we will ever see the type of euphoria we saw in late 1999 - early 2000. In the meantime, while so many investors continue to be wrapped up in anger, denial, bitterness and perpetual pessimism you can still take advantage of opportunities out there especially in the small/micro cap space because that's where you can find market inefficiencies. Many of those companies were the last in line to get financing after the crash and now that credit markets have thawed out; they are starting to get it again.
I'm still quite busy with my new house and I'm going to be posting less frequently.
Now, the question is, is this GS news the catalyst that sparks the next correction? I have my doubts unless we start seeing other charges made to other large players and even if that happens something like this is not a bull market killer...this excuse would be weaker than the ones that sparked previous corrections.
If the high of this move from Feb is in it's quite likely that there will be at least 1 week of topping behavior which suggests a run back at those highs.
I don't even know why I talk about these little wiggles in the market when I don't even play the indices anymore...it's more like a sideshow for me. Instead, I continue to focus on individual names and although I have a large cash position right now due to the sale of some winners, I'm still riding some a few names. GDC.to is one that has done very well for me this year and this week it had a nice breakout to new highs on good news. I expect this one to hit at least $6.
I was looking at the 5 years chart of the NASDAQ and noticed that it's only about 15% away from surpassing the previous bull market peak in 2007! The retail index as measured by the RLX is also in the same situation! Yet all we hear in the media is "new normal" and "consumer deleveraging". Folks, the stock market is sending a very powerful message here that so many people simply refuse to believe....it's saying the sky is about to get a lot brighter in the months ahead. Eventually though, I still believe we are going to get a multi-month period of choppiness. Coming into the year I made a post saying that based up history, after the first 10-14 months of the start of a new bull market you tend to see a multi-month choppy consolidation period. We are now in month 13. Of course, there's no law that says we have to see such a consolidation period but odds suggest we will. But if you try to time all the ST peaks and valleys of a bull market you WILL eventually get left behind and I'm sure it has happened to a lot of bulls already. That doesn't mean you shouldn't ever take profits...nothing is the game is certain and you need to ensure that you will live to see another day...but you need to have some conviction and courage to keep a LT position at all times if you want to make big money in a bull market. Very few people do this.
The dual nasty bear markets of the 2000’s have left so many investors permanently scarred especially the 2008 collapse which was the worst collapse since 1929-1932. I believe it will take a new generation of investors who don't have such bad memories before we will ever see the type of euphoria we saw in late 1999 - early 2000. In the meantime, while so many investors continue to be wrapped up in anger, denial, bitterness and perpetual pessimism you can still take advantage of opportunities out there especially in the small/micro cap space because that's where you can find market inefficiencies. Many of those companies were the last in line to get financing after the crash and now that credit markets have thawed out; they are starting to get it again.
I'm still quite busy with my new house and I'm going to be posting less frequently.
Thursday, April 15, 2010
Quick update
AAII sentiment is at 1.6 bulls to bears. Still not at the 2:1 threshold. My god, what's it going to take for people to actually embrace this bull market? A 300% rally?
What this says is that we actually have room to go higher still from here! But with the recent low put/call ratios it's quite likely any gains from here will be given back shortly after. What interesting and bizzare times.
What this says is that we actually have room to go higher still from here! But with the recent low put/call ratios it's quite likely any gains from here will be given back shortly after. What interesting and bizzare times.
The most hated bull market of all time
I was going to talk about gold but I had to comment on today's action. Yet another fresh 52 week high today taking out SPX 1200. I think a lot of bear blood was spilled today. All those remaining clowns I was talking about who got caught shorting at 1100 about a month ago probably got wiped out today. The market has now fully retraced the entire panic selloff that began in mid September 2008. Back in January I speculated that an IT top could be made somewhere between 1150-1200 because this was range where Lehman Bros. collapse began. Well, we have now marginally exceeded this target range. A lot of people are saying we’ve come too far too fast. My answer to that is what goes around comes around. How come nobody ever mentions that the SPX dropped about 30% in 10 days in the fall of 2008? And yet it STILL dropped another 25% before reaching a final bottom!
Today there was an off the charts extremely low put/ratio. I’m sure option expiration this week is playing a factor; however, a low number is a low number and this signals extreme greed. The 10DMA of the total put/call ratio is now very low and suggests and IT top is imminent but again, as I stressed before many times, you don't step in front of a market that has just made a fresh 52 week high. If you want to take some longs off the table that's fine, but if you want to short you're asking for trouble. Tomorrow I will be very curious to see what AAII sentiment is. I'm looking for at least a 2:1 ratio of bulls vs. bears to confirm an imminent IT top signal.
But despite the prospect of a IT top, it amazes me how every time the market makes a new high I continue see anger instead celebration from the retail ilk. This tells me your typical retail ilk is still shorting rallies instead of buying dips. It's fucking unbelievable how a now 80% gain in market since the lows 13 months ago is so hated. It has to do with the group think about how this bull market is the result government manipulation, fed money printing, GS propping, ect. People are still very bitter, angry in denial and clueless about the market. One guy on the boards asked "What exaclty has improved?". Numbskulls like this are fodder for the sharks. A lot of people feel just like him and that folks tells me this market has a long way to go before it's done going up. It will continue to humiliate the masses until it earns there respect.
I'm also waiting to see if we will ever get a mea culpa out of Pretcher, Hussman, Kass, Roubini or any of the other bears who have been nothing but horribly wrong about the market for so long. Look, everyone get's it wrong at times but what really pisses me off is when such people ever refuse to admit it and defer to the "I'm not wrong just early" excuse. I think these "gurus" do such things because they think that to admit being wrong is to show weakness. At least Cramer will admit when he fucks up (most of the time).
People are also learning a lesson the hard way that just because some guru made a great call calling a major top or bottom doesn't mean he/she can't get wrong big time later on. Many people for example worshiped Kass with his bottom call in March but he turned bearish in the 950's and then all in bearish around 1030. I bet against Kass...and won. Me, a nobody who writes a blog that maybe 10 people read. Don't worry, I'm not getting a swell head for being right...I know better. My point is that nobody and I mean nobody is infallible no matter what great calls they have made in the past and I don't care if they've been right as rain for 10 years in a row. Respect what savvy people think but you and you alone must be your own guru and have confidence enough in yourself to go against a famous opinion leader in the market if need be.
Bottom line: the air is getting really thin at this point of the rally but until the market actually starts churning or rolling over you better respect the action or risk getting run over. But correction or not, this bull market isn’t over.
.
Today there was an off the charts extremely low put/ratio. I’m sure option expiration this week is playing a factor; however, a low number is a low number and this signals extreme greed. The 10DMA of the total put/call ratio is now very low and suggests and IT top is imminent but again, as I stressed before many times, you don't step in front of a market that has just made a fresh 52 week high. If you want to take some longs off the table that's fine, but if you want to short you're asking for trouble. Tomorrow I will be very curious to see what AAII sentiment is. I'm looking for at least a 2:1 ratio of bulls vs. bears to confirm an imminent IT top signal.
But despite the prospect of a IT top, it amazes me how every time the market makes a new high I continue see anger instead celebration from the retail ilk. This tells me your typical retail ilk is still shorting rallies instead of buying dips. It's fucking unbelievable how a now 80% gain in market since the lows 13 months ago is so hated. It has to do with the group think about how this bull market is the result government manipulation, fed money printing, GS propping, ect. People are still very bitter, angry in denial and clueless about the market. One guy on the boards asked "What exaclty has improved?". Numbskulls like this are fodder for the sharks. A lot of people feel just like him and that folks tells me this market has a long way to go before it's done going up. It will continue to humiliate the masses until it earns there respect.
I'm also waiting to see if we will ever get a mea culpa out of Pretcher, Hussman, Kass, Roubini or any of the other bears who have been nothing but horribly wrong about the market for so long. Look, everyone get's it wrong at times but what really pisses me off is when such people ever refuse to admit it and defer to the "I'm not wrong just early" excuse. I think these "gurus" do such things because they think that to admit being wrong is to show weakness. At least Cramer will admit when he fucks up (most of the time).
People are also learning a lesson the hard way that just because some guru made a great call calling a major top or bottom doesn't mean he/she can't get wrong big time later on. Many people for example worshiped Kass with his bottom call in March but he turned bearish in the 950's and then all in bearish around 1030. I bet against Kass...and won. Me, a nobody who writes a blog that maybe 10 people read. Don't worry, I'm not getting a swell head for being right...I know better. My point is that nobody and I mean nobody is infallible no matter what great calls they have made in the past and I don't care if they've been right as rain for 10 years in a row. Respect what savvy people think but you and you alone must be your own guru and have confidence enough in yourself to go against a famous opinion leader in the market if need be.
Bottom line: the air is getting really thin at this point of the rally but until the market actually starts churning or rolling over you better respect the action or risk getting run over. But correction or not, this bull market isn’t over.
.
Monday, April 12, 2010
Some of this and that
The market has been acting as I've been expecting it to. Here we are now at DOW 11K and SPX 1200 (close enough). Retail bears have been all but slaughtered (yet again) during the past several weeks with their April puts. The market has climbed the proverbial wall of worry by overcoming bank regulation fears, deficit fears, PIGS fears and socialism fears a.k.a the passing of the health care bill. All these things are temporary distractions from what the market really cares about....earnings in the next 6-12 months. Earnings have been surging and now and with job figures turning from negative to positive we are near an inflection point where a large cohort of pessimists/skeptics are going to have to concede sooner or later and that's going to fuel the next leg up.
Are we still in the multi-month consolidation phase of the bull market which I alluded to in coming into this year? I think so. I hypothesized that the during this phase marginal break out above 1150 was within the parameters but if we keep going another 2-3% higher my consolidation phase call could very well be invalidated. Job gains are likely going to come in fits and starts and there’s the potential now for some sort of “sell the news” reaction to good earnings.
With the fears noted above overcame, the market now needs some other battle to fight. The market is indeed quite overbought and has been for a few weeks now. The good thing about this is that it's indicative of bull market behavior the bad thing is that eventually this condition will be alleviated via sideways or downside action with the potential for a large percentage of the gains attained during the past several weeks to be wiped out within 1 week or even less. But that's the way bull markets work....slow steady and often relentless climbs followed by short but sharp corrections.
So, what's going to be the next catalyst a.k.a "excuse" for the market to sell off? A sell the new s reaction to earnings can only go so far….there needs to be some sort of new thing to “worry about”. I speculated that it may be China slowdown fears. Although there has been talk about a China bubble, no solid evidence of even a slowdown has come about…but that might change soon. It doesn’t have to be China…the catalyst could be anything really such as Obama opting for boxers instead of briefs. What tends to happen is that once enough weak bears have been slaughtered and weak longs have been sucked in the trap door for a correction will be sprung due to even the flimsiest of excuses. But as I've mentioned before....you shouldn't concern yourself wasting too much time and energy about short term corrections in a bull market. Big money is made riding big trends and if try to time every dip in a bull market sooner or later you will be left on the sidelines as the market takes off without you....that's just the way it goes. You will have a hard time beating buy and hold during a bull market. Having said that though, I believe the prudent thing to do is to have a LT core position and a trading position for any LT holding. The trading position can be used to take profits or hedge after strong run ups. The core position is to never be touched no matter what until LT fundamental conditions are expected to turn soon or temporary euphoria has caused the stock to reach extreme overbought levels with the price getting far ahead of what is justified at the time being....in those cases the risk of a severe pullback and consolidation makes it worth selling the core position.
In my next post I'm going to talk a bit about gold.
Are we still in the multi-month consolidation phase of the bull market which I alluded to in coming into this year? I think so. I hypothesized that the during this phase marginal break out above 1150 was within the parameters but if we keep going another 2-3% higher my consolidation phase call could very well be invalidated. Job gains are likely going to come in fits and starts and there’s the potential now for some sort of “sell the news” reaction to good earnings.
With the fears noted above overcame, the market now needs some other battle to fight. The market is indeed quite overbought and has been for a few weeks now. The good thing about this is that it's indicative of bull market behavior the bad thing is that eventually this condition will be alleviated via sideways or downside action with the potential for a large percentage of the gains attained during the past several weeks to be wiped out within 1 week or even less. But that's the way bull markets work....slow steady and often relentless climbs followed by short but sharp corrections.
So, what's going to be the next catalyst a.k.a "excuse" for the market to sell off? A sell the new s reaction to earnings can only go so far….there needs to be some sort of new thing to “worry about”. I speculated that it may be China slowdown fears. Although there has been talk about a China bubble, no solid evidence of even a slowdown has come about…but that might change soon. It doesn’t have to be China…the catalyst could be anything really such as Obama opting for boxers instead of briefs. What tends to happen is that once enough weak bears have been slaughtered and weak longs have been sucked in the trap door for a correction will be sprung due to even the flimsiest of excuses. But as I've mentioned before....you shouldn't concern yourself wasting too much time and energy about short term corrections in a bull market. Big money is made riding big trends and if try to time every dip in a bull market sooner or later you will be left on the sidelines as the market takes off without you....that's just the way it goes. You will have a hard time beating buy and hold during a bull market. Having said that though, I believe the prudent thing to do is to have a LT core position and a trading position for any LT holding. The trading position can be used to take profits or hedge after strong run ups. The core position is to never be touched no matter what until LT fundamental conditions are expected to turn soon or temporary euphoria has caused the stock to reach extreme overbought levels with the price getting far ahead of what is justified at the time being....in those cases the risk of a severe pullback and consolidation makes it worth selling the core position.
In my next post I'm going to talk a bit about gold.
Wednesday, April 7, 2010
Despite any looming correction we are still in phase 1 of the bull market
A cousin of mine recently posted this in his facebook status
I love the way the Toronto Star is reporting how the economy is starting to get better while Sky Service, Lake Port Breweries and a Saputo plant are all closing down for business. Basic economics, no jobs, no recovery. Educate yourself people. Don't believe everything you read
My cousin is what you would call a main street observer of the economy and I think it's fair to say that a lot of people like him (probably most people) share his views. He has no background in economics or finance and never bought a stock in his life. The funny thing about his comment is that he's the one that needs to be educated!He bases his opinions of the economy upon naive observations such as jobs which is a lagging indicator. Guys like my cousin are the type of people I love to fade especially when the stock market is moving sharply in the opposing direction. Guys like my cousin are the "dumb money" even though he's a smart guy in general. My cousin's views echo the view of the general main street media, another late to the party dumb money indicator which I mentioned a few times before.
I said before, one way to know what's the right path is to take the opposite one that the dumb money is travelling on ESPECIALLY when the dumb money is going against the message of the stock market. The fact that the market has soared 75% in 1 year and Main Street for the most part remains bearish/skeptical about the economy is a very good sign that the bull market is still in phase 1 - skepticism. Yes, I know a 78% gain is huge but bull markets don't end based upon a certain percentage move attained. They end when greed and excess is paramount because that's what sows the seeds of the next bear market.
My cousin's comments give me the encouragement to continue to look for individual long plays. The next phase of the bull market - optimism, will begin when clearer signs of economic recovery are evident i.e. persistent job growth. We aren't quite there yet. Don’t let the prospect of a looming market correction interfere with your decision to buy an individual name that looks promising. Go for it. You can always hedge the position a bit with an index put but don’t go overboard on the hedging.
I love the way the Toronto Star is reporting how the economy is starting to get better while Sky Service, Lake Port Breweries and a Saputo plant are all closing down for business. Basic economics, no jobs, no recovery. Educate yourself people. Don't believe everything you read
My cousin is what you would call a main street observer of the economy and I think it's fair to say that a lot of people like him (probably most people) share his views. He has no background in economics or finance and never bought a stock in his life. The funny thing about his comment is that he's the one that needs to be educated!He bases his opinions of the economy upon naive observations such as jobs which is a lagging indicator. Guys like my cousin are the type of people I love to fade especially when the stock market is moving sharply in the opposing direction. Guys like my cousin are the "dumb money" even though he's a smart guy in general. My cousin's views echo the view of the general main street media, another late to the party dumb money indicator which I mentioned a few times before.
I said before, one way to know what's the right path is to take the opposite one that the dumb money is travelling on ESPECIALLY when the dumb money is going against the message of the stock market. The fact that the market has soared 75% in 1 year and Main Street for the most part remains bearish/skeptical about the economy is a very good sign that the bull market is still in phase 1 - skepticism. Yes, I know a 78% gain is huge but bull markets don't end based upon a certain percentage move attained. They end when greed and excess is paramount because that's what sows the seeds of the next bear market.
My cousin's comments give me the encouragement to continue to look for individual long plays. The next phase of the bull market - optimism, will begin when clearer signs of economic recovery are evident i.e. persistent job growth. We aren't quite there yet. Don’t let the prospect of a looming market correction interfere with your decision to buy an individual name that looks promising. Go for it. You can always hedge the position a bit with an index put but don’t go overboard on the hedging.
Monday, April 5, 2010
Will the bears get thrown a bone? Yes...when they stop looking for one
Finally I'm somewhat settled into my new home. I gotta tell you...don't ever move unless you have to. It's such a pain in ass but it's going to be a nice change going from a 1 bedroom condo to a 2 storey detached but along with that, more work and money to maintain. Our house isn't very big but my office sure is. It went from a crammed den to a room about triple the size with my desk facing a large window. I have so much empty space here to fill up! I foresee a TV and plant in the not too distant future. To my right there's a door that leads outside to a balcony in case I want to go out and get some air. I'm loving this....a lot! We're still not completely unpacked and we still haven't received/hooked up all of our appliances but we're getting there. The cat is just now beginning to get over his trauma. Poor Willy.
Anyhow, enough about me and my insignificant life. It looks like I was correct about the bear trap and now here we are knocking at the door of SPX 1200. The persistent strength in the market has even the bulls surprised, but that folks is what the market does. It was the same with the bear market in 2008...it tanked well beyond what most bears expected and a lot of them missed out on the move from 1100 to 666.
Payrolls came in on Friday at 165K which was slightly below expectations. I'm already seeing the badly burned permabear retail trading community dismiss this due to census hiring and distortions from bad weather in February which is true but all this does is keep the bears on their slope of hope. How ironic is this because it's the bears who like to use the phrase "slope of hope" in reference to the behavior of bag holding bulls during bear markets. Now it's the bears that have been on their own slope of hope holding the bag on the short side as they cling to their "low volume" and "PPT" crutches.
About 3 weeks ago I said
I think at least 2-3 weeks of further marginal upside or sideways action is in store before enough bears have been shaken out and enough weak bulls have been sucked in before the next correction begins.
Well, here we are 3 weeks later and the market has acted like I expected. Have we seen enough bears get shaken out to finally get a correction? hmmmmm...we're pretty damn close I think but given the tendency for the market to hit round numbers Dow 11K and SPX 1200 seem likely. I mentioned a few weeks back that the permabear retail trading community appeared to be trapped in April puts. Those puts are now pretty much decimated and so once complete capitulation has occured the market won't have any more of these broken backs to climb higher on. We're probably close to complete capitulation however, it might take a move slightly over 1200 to really do the trick. The risk reward it piss poor to play this but if you look at the alternative i.e. shorting after a fresh 52 week high you are just begging for a head handing. A rule I follow religiously because it works almost every time is to never ever, ever, ever pick a top or bottom no matter how tempting when the market has made a fresh 52 week high/low because odds heavily favor that yet another 52 week high/low is right around the corner. Besides, at ST/IT tops you typcially see at least 1 week's worth of topping action and so there's no need to top tick.
In addition, at ST/IT peaks and troughs, you typically see recklessness on the part of options traders. In the case of top you will typically see about 1 week or so of heavy call buying even when the market is not making much upside progress. This is a sign of greed and it almost always gets punished...sometimes not immediately but shortly afterwards. We aren't seeing this yet although today there was indeed quite a bit of call buying (but the market did have a solid up day so it's at least somewhat justified).
I was scanning a ton of charts of individual stocks on the TSX just prior to when I moved and I found many that looked good. I was swearing a lot today to see that quite of few of these names took off big time without me on board thanks to me being distracted with moving. Oh well..no use crying about spilled milk.
Bottom line. We're red lining here on this upside move since early Feburary
but untill the market shows signs of rolling over you have two choices: join in or step aside. Don't ever step in front of a market that has made a fresh 52 week high/low unless you like to lose money.
Anyhow, enough about me and my insignificant life. It looks like I was correct about the bear trap and now here we are knocking at the door of SPX 1200. The persistent strength in the market has even the bulls surprised, but that folks is what the market does. It was the same with the bear market in 2008...it tanked well beyond what most bears expected and a lot of them missed out on the move from 1100 to 666.
Payrolls came in on Friday at 165K which was slightly below expectations. I'm already seeing the badly burned permabear retail trading community dismiss this due to census hiring and distortions from bad weather in February which is true but all this does is keep the bears on their slope of hope. How ironic is this because it's the bears who like to use the phrase "slope of hope" in reference to the behavior of bag holding bulls during bear markets. Now it's the bears that have been on their own slope of hope holding the bag on the short side as they cling to their "low volume" and "PPT" crutches.
About 3 weeks ago I said
I think at least 2-3 weeks of further marginal upside or sideways action is in store before enough bears have been shaken out and enough weak bulls have been sucked in before the next correction begins.
Well, here we are 3 weeks later and the market has acted like I expected. Have we seen enough bears get shaken out to finally get a correction? hmmmmm...we're pretty damn close I think but given the tendency for the market to hit round numbers Dow 11K and SPX 1200 seem likely. I mentioned a few weeks back that the permabear retail trading community appeared to be trapped in April puts. Those puts are now pretty much decimated and so once complete capitulation has occured the market won't have any more of these broken backs to climb higher on. We're probably close to complete capitulation however, it might take a move slightly over 1200 to really do the trick. The risk reward it piss poor to play this but if you look at the alternative i.e. shorting after a fresh 52 week high you are just begging for a head handing. A rule I follow religiously because it works almost every time is to never ever, ever, ever pick a top or bottom no matter how tempting when the market has made a fresh 52 week high/low because odds heavily favor that yet another 52 week high/low is right around the corner. Besides, at ST/IT tops you typcially see at least 1 week's worth of topping action and so there's no need to top tick.
In addition, at ST/IT peaks and troughs, you typically see recklessness on the part of options traders. In the case of top you will typically see about 1 week or so of heavy call buying even when the market is not making much upside progress. This is a sign of greed and it almost always gets punished...sometimes not immediately but shortly afterwards. We aren't seeing this yet although today there was indeed quite a bit of call buying (but the market did have a solid up day so it's at least somewhat justified).
I was scanning a ton of charts of individual stocks on the TSX just prior to when I moved and I found many that looked good. I was swearing a lot today to see that quite of few of these names took off big time without me on board thanks to me being distracted with moving. Oh well..no use crying about spilled milk.
Bottom line. We're red lining here on this upside move since early Feburary
but untill the market shows signs of rolling over you have two choices: join in or step aside. Don't ever step in front of a market that has made a fresh 52 week high/low unless you like to lose money.
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