commercial real estate shoe to drop
ARMS resets
"shadow" foreclosure inventory hitting the market causing another downleg in housing prices
double dip reccession
head and shoulders top
Dubai
PIIGS
stubbornly high unemployment
low volume
death cross
hindenburg omen
I'm sure there's more you can add to this list. Some of these concerns triggered dips/corrections but despite it all the market has had it's biggest run up since 1955. Oh but wait...it's all a bs government manipulated bull market and the earnings explosion is just a fabrication right?
Let's look at history. The reccession in 1990 was a housing led bust just like in 2008 but not as severe. As the article I posted last week mentioned, the recovery in the early 90s was initially sluggish and structural headwinds appeared firmly in place as is the popular view today. Back then the government had to step in and "manipulate" the market by forming the resolution trust to mop up all the bad real estate related debt banks had on their books.
In the early 1980s most large US banks were technically insolvent due to bad loans to Latin America but the government allowed them to report assets at inflated prices because their market value would have reflected panick/fire sale prices making them insolvent. Sound familiar? I'm sure bears were screaming bloodly murder at the time just like they did this time around.
And so I ask this, how did the market and the economy fare in the years that followed these 2 episodes of goverment manipulation and what looked like a hopeless economy? I'm sure you know. Government manipulation of the economy has been in existance for like...ever. The panic of 1907 is yet another example of when a higher authority had to step in to rescue the market. And so guess what....contrary to popular belief, government manipulation can work - when their timing is right. When they step in during panic situations it works because they are doing akin to what most savvy investors do - buy low when fear is rampant. All you bears out there, don't get all hot under the collar now. I didn't say all government manipulation works. If it did we would never have recessions. But if you think that this recovery is all just a house of cards because of government manipulation in the market then you could be in for a very rude awaking....if it hasn't happened already, which I'm sure for most of the bears it has.
Months ago, I mentioned that I'm going to focus more on big picture issues and less on ST flucuations and I intend to continue doing so. But believe me, I'm not going to be so cocky in thinking that my LT bullish stance is bullet proof. That sort of thinking can get you into a lot of trouble. But I have a very, very hard time embracing the bear case when I see reports like how in the face of the strongest bull advance since 1955, 1 in 7 Americans believe the recovery is sustainable (as per a recent bloomberg survey). Every fibre of my being tells me I have to fade dumb money main street when they act contrary to the stock market like this. Of course, I could have said the same thing in April of 2010 just prior to the flash crash and a 15% correction, since Main Street sentiment was probably the same if not worse then. But I'm not talking about the short or intermediate term. I'm talking about the long term here.
Regading the shorter term, look again at the charts I posted in early January. In bull markets you can see periods of several months where the trend goes sideways/moderately down which typically happens after a big move up and when traditional sentiment indicators show high bullishness. Coming into this year I was expecting to see such a phase begin in the not too distant future but I knew it would be tricky to time it precisely as are most corrections in bull markets which is a major reason why I don't short in bull markets.
Unlike with the start of prior corrections, I didn't see reckless call buying in the options market which makes me believe that any downside from here will be contained. We've had 2 days in a row now whereby the put/call ratio closed above 1 which means bearish sentiment is rapidly rising. In addition, I don't think this correction was very surprising. Therefore there's a good chance this correction will be rather mild and the "real" correction won't start till later on. Whatever...I'm not going to get obsessed about these ST predictions because quite frankly the ST is often just a guessing game and you're more than likely to blow your brains out trying to game the day to day like most people out there do. As I said many times before, big money is made riding the big trends.
I'm in a position whereby I'm comfortable with my exposure. I'm about 60% long 40% cash and my longs have been dancing to their own tune for the most part holding up quite well overall...so far.
low volume
death cross
hindenburg omen
I'm sure there's more you can add to this list. Some of these concerns triggered dips/corrections but despite it all the market has had it's biggest run up since 1955. Oh but wait...it's all a bs government manipulated bull market and the earnings explosion is just a fabrication right?
Let's look at history. The reccession in 1990 was a housing led bust just like in 2008 but not as severe. As the article I posted last week mentioned, the recovery in the early 90s was initially sluggish and structural headwinds appeared firmly in place as is the popular view today. Back then the government had to step in and "manipulate" the market by forming the resolution trust to mop up all the bad real estate related debt banks had on their books.
In the early 1980s most large US banks were technically insolvent due to bad loans to Latin America but the government allowed them to report assets at inflated prices because their market value would have reflected panick/fire sale prices making them insolvent. Sound familiar? I'm sure bears were screaming bloodly murder at the time just like they did this time around.
And so I ask this, how did the market and the economy fare in the years that followed these 2 episodes of goverment manipulation and what looked like a hopeless economy? I'm sure you know. Government manipulation of the economy has been in existance for like...ever. The panic of 1907 is yet another example of when a higher authority had to step in to rescue the market. And so guess what....contrary to popular belief, government manipulation can work - when their timing is right. When they step in during panic situations it works because they are doing akin to what most savvy investors do - buy low when fear is rampant. All you bears out there, don't get all hot under the collar now. I didn't say all government manipulation works. If it did we would never have recessions. But if you think that this recovery is all just a house of cards because of government manipulation in the market then you could be in for a very rude awaking....if it hasn't happened already, which I'm sure for most of the bears it has.
Months ago, I mentioned that I'm going to focus more on big picture issues and less on ST flucuations and I intend to continue doing so. But believe me, I'm not going to be so cocky in thinking that my LT bullish stance is bullet proof. That sort of thinking can get you into a lot of trouble. But I have a very, very hard time embracing the bear case when I see reports like how in the face of the strongest bull advance since 1955, 1 in 7 Americans believe the recovery is sustainable (as per a recent bloomberg survey). Every fibre of my being tells me I have to fade dumb money main street when they act contrary to the stock market like this. Of course, I could have said the same thing in April of 2010 just prior to the flash crash and a 15% correction, since Main Street sentiment was probably the same if not worse then. But I'm not talking about the short or intermediate term. I'm talking about the long term here.
Regading the shorter term, look again at the charts I posted in early January. In bull markets you can see periods of several months where the trend goes sideways/moderately down which typically happens after a big move up and when traditional sentiment indicators show high bullishness. Coming into this year I was expecting to see such a phase begin in the not too distant future but I knew it would be tricky to time it precisely as are most corrections in bull markets which is a major reason why I don't short in bull markets.
Unlike with the start of prior corrections, I didn't see reckless call buying in the options market which makes me believe that any downside from here will be contained. We've had 2 days in a row now whereby the put/call ratio closed above 1 which means bearish sentiment is rapidly rising. In addition, I don't think this correction was very surprising. Therefore there's a good chance this correction will be rather mild and the "real" correction won't start till later on. Whatever...I'm not going to get obsessed about these ST predictions because quite frankly the ST is often just a guessing game and you're more than likely to blow your brains out trying to game the day to day like most people out there do. As I said many times before, big money is made riding the big trends.
I'm in a position whereby I'm comfortable with my exposure. I'm about 60% long 40% cash and my longs have been dancing to their own tune for the most part holding up quite well overall...so far.
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