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vin
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Joined: 06 Jul 2006
Posts: 82
Location: Buenos Aires
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 Posted: Thu Jul 06, 2006 8:35 pm Post subject: DEADShort term sentimentsDEAD |
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New here – mostly swing trading. I’ve been searching for a serious site and believe I have found it here. Mr. To’s commentaries are excellent. Let’s cut to it - I for one am spooked short term (1-3 weeks). Here are my reasons:
First, the current rally just doesn’t seem to have teeth. The move up on June 29 seemed exaggerated. It was just a big ‘Hurrah, the Fed did what we expected.’ Many read a future pause into Bernanke’s statement but who knows? It’s almost as if the market ‘willed’ a rally.
Second, after this delayed follow through day the major indexes responded with a pullback on increased volume (modest in percentage loss).
Third, two days prior (June 27th) all three indices had what I call a ‘heave day.’ They climbed over the previous day’s high only to close lower than the previous day’s low – all on increased volume.
Fourth, there was no doubt some end of the quarter window dressing and short covering.
What has happened since? Some call it consolidation; I call it distribution and selling into bounces. The accumulation volume has been anemic. Although the holiday week clouds things the leading events remain.
Lastly, the most important thing is the gut. Something makes me feel very uneasy (see below). Maybe it was the synthesis of what I mentioned above; maybe I am worried about locking in gains on this recent move up. Nevertheless, I liquidated everything except LEN as I don’t think homebuilders can get beat up much more (gee, wonder where I got that idea?).
North Korea lobbing missiles into the sea doesn’t help. I think there will be one more shakeout before we test old highs again. I don’t know if we’ll sink to (or below) the mid-June lows, but it could be painful. Predictions are pretty much worthless until events transpire. I’m only building an arguable case. The market doesn’t care or need reasons to steamroll every naysayer out there. Let the tape decide.
Side note: I was reading my Bible before the market opened and came across these verses:
“With her enticing speech she caused him to yield, with her flattering lips she seduced him. Immediately he went after her, as an ox goes to the slaughter, or as a fool to the correction of the stocks…” Proverbs 7:21-22
I don’t claim to have divine intervention on my side, and starting my day with this verse might have been what spooked me. Take it for what it’s worth, but the wording in this verse is uncanny in its application to bulls running up a blind (r)alley. The Bible remains the best book on investing ever written (not to mention the invaluable spiritual content). If you don’t have one, get one. |
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rffrydr
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Joined: 30 Oct 2005
Posts: 7645
Location: Sunny California
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| Posted: Tue Jun 26, 2007 12:28 pm Post subject: |
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Good point dash...we'd say just another grain of sand and we don't know which would be the first to take the others down with it. And we'd certainly say it would not be the first--so not surprising that Refco was no real trigger.
Of deeper interest is that what brought Refco down was not a market event. So too the hedge-fund burn on GM/GMbonds spreads in 05 and Amarath NatGAS backwardization spreads and Bear's ABX/RMBS spread. Alpha lurks here and it's why some traditional market measures have moved to the backseat for my use.
With liquidity as the focus Refco provides a good oppotunity to review as nowhere was the faith built into such arrangements more apparent than in a futures clearing firm:
http://www.slate.com/id/2128196/
This from Baa closed-end prospectus:
| Quote: | The premise underlying the use of leverage is that the costs of leveraging generally will be based on shortterm
rates, which normally will be lower than the return (including the potential for capital appreciation) that the
Fund can earn on the longer-term portfolio investments that it makes with the proceeds obtained through the
leverage. Thus, the stockholders would benefit from an incremental return. However, if the differential between
the return on the Fund’s investments and the cost of leverage were to narrow, the incremental benefit would be
reduced and could be eliminated or even become negative. Furthermore, if long-term rates rise, the net asset
value of the Fund’s common shares will reflect the resulting decline in the value of a larger aggregate amount of
portfolio assets than the Fund would hold if it had not leveraged. Thus, leveraging exaggerates changes in the
value and in the yield on the Fund’s portfolio. This, in turn, may result in greater volatility of both the net asset
value and the market price of the common shares.
To the extent the income or capital appreciation derived from securities purchased with funds received from
leverage exceeds the cost of leverage, the Fund’s return will be greater than if leverage had not been used.
Conversely, if the income or capital appreciation from the securities purchased with such funds is not sufficient
to cover the cost of leverage, the Fund’s return will be less than if leverage had not been used, and therefore the
amount available for distribution to stockholders as dividends and other distributions will be reduced.
Nevertheless, the Adviser may determine to maintain the Fund’s leveraged position if it deems such action to be
appropriate under the circumstances. As discussed under “Management of the Fund,” the fees payable to the
Adviser for investment management and administrative services during periods in which the Fund is using
leverage will be higher than when it is not doing so because the fees are calculated as a percentage of Managed
Assets, which include assets purchased with leverage. |
That last part is a real kicker.
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Today is the Tomorrow you worried about Yesterday!
Last edited by rffrydr on Wed Jul 11, 2007 9:47 am; edited 1 time in total |
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dash
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Joined: 12 Apr 2005
Posts: 473
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| Posted: Tue Jun 26, 2007 10:28 am Post subject: |
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Henry,
The study goes back to 2004, so it does includes the rally from June 2006. It probably isn't applicable to a bear market; difficult to know how well it would work if we're at the beginning of a sizable correction.
A lot of the data he cites only go back as far as 2004, which is frustrating.
On a different note I came across this article from Business Week this morning:
| Quote: | If investors needed a wake-up call about the potentially dangerous flood of money surging into private equity firms and hedge funds, they're getting it with the collapse of Refco Inc.
[..]
After a series of hedge-fund implosions in recent months, the Refco fiasco offers only the latest warning that peril lurks in arcane and secretive corners of the financial world. |
...dated 07/11/2005. You could pretty much replace Refco with Bear Stearns Hedge Funds and the message would be the same. |
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HenryTo
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Joined: 06 Aug 2004
Posts: 7688
Location: Houston, Texas & Los Angeles, California
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| Posted: Tue Jun 26, 2007 10:09 am Post subject: |
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| Quote: | | Conversely, when we have had fewer than 100 stocks making fresh 65 day lows (N = 52), the next 50 days in SPY have averaged a loss (!) of -.08% (21 up, 31 down). |
Dash, I wonder how well this statistic worked on our way up from mid June 2006?
Also note that this statistic most probably didn't work too well during Summer/Fall 1998 and 2000 to March 2003. Not to mean any disrespect, but this looks like more of a ST timing tool than anything else.
Best,
Henry |
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dash
Veteran Poster
Joined: 12 Apr 2005
Posts: 473
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| Posted: Tue Jun 26, 2007 9:55 am Post subject: |
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The market's inefficiencies, and hence its greatest returns, occur when traders and investors behave in a herdlike manner. That's when they're buying or selling indiscriminately, lifting or pummeling all shares. One way of assessing such herdlike behavior is tracking the number of stocks across the major exchanges (NYSE, NASDAQ, ASE) that are making fresh 65-day lows.
Going back to 2004 (N = 814 trading days), there have been 82 occasions in which 65 day lows have exceeded 700. Fifty days later, the S&P 500 Index (SPY) has been up by an impressive average of 3.65% (73 up, 9 down).
Conversely, when we have had fewer than 100 stocks making fresh 65 day lows (N = 52), the next 50 days in SPY have averaged a loss (!) of -.08% (21 up, 31 down).
For all other occasions (N = 679), SPY has averaged a 50-day gain of 1.61% (466 up, 213 down). |
New 65-day lows on NYSE, Nasdaq, and ASE were 751 yesterday.
http://www.brettsteenbarger.com/trader_performance.htm |
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HenryTo
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Joined: 06 Aug 2004
Posts: 7688
Location: Houston, Texas & Los Angeles, California
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| Posted: Mon Jun 25, 2007 11:51 am Post subject: |
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Thanks Dash, interesting post.
As opposed to doing the necessary research, many folks are just presenting their own opinions by looking at their own balance sheets and pay stubs - so the results of this survey isn't too suprising in light of the ever-wider income and wealth distributions. This makes perfect sense, however. A classic quote is that it is only a recession if your neighbor loses his job, but it is a depression if you lose your own job. |
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dash
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Joined: 12 Apr 2005
Posts: 473
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| Posted: Mon Jun 25, 2007 11:43 am Post subject: |
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| Quote: | WASHINGTON -- Seventy percent of Americans now say the economy is getting worse, a belief contradicted by a growing workforce, increased wages and household wealth, and a stock-market rally that has boosted worker-retirement investments.
A survey of how Americans see the economy found that just 34 percent believe national economic conditions are "excellent" or "good," compared to 43 percent who said "only fair" and 23 percent who said "poor," Gallup reported last week. This represents a sharp deterioration in the economic scorecard in the past six months. In January, fully 52 percent of those polled said the U.S. economy was excellent or good.
Gallup's June 11 to June 14 survey also showed that "7 in 10 Americans now say the economy is getting worse, the most negative reading in nearly six years." The last time national economic perceptions were this bad: early September 2001 -- |
http://www.townhall.com/Columnists/DonaldLambro/2007/06/25/a_worsening_economy_no_way
Also I thought this was an interesting observation...:
| Quote: | In a larger context, the "U.S. household sector is showing rapid growth in most types of savings. At $29.1 trillion, U.S. households have more net financial assets than the rest of the world combined," said Bear Stearns' chief economist David Malpass.
"In the first quarter, U.S. household net worth (assets less liabilities) rose to $56.2 trillion. Household liquid assets (deposits, credit market instruments, equities, mutual funds) totaled $21 trillion, a new record and up from the fourth quarter's $20.7 trillion," he said.
"The multi-decade accumulation in U.S. household assets and savings is a key factor in the economy's sturdiness and strong long-term prospects," he added in a recent analysis for Wall Street clients. |
... in light of this quote from The BIS:
| Quote: | | The bank said it was far from clear whether the US would be able to shrug off the consequences of its latest imbalances, citing a current account deficit running at 6.5pc of GDP, a rise in US external liabilities by over $4 trillion from 2001 to 2005, and an unpredented drop in the savings rate. "The dollar clearly remains vulnerable to a sudden loss of private sector confidence," it said. |
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HenryTo
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Location: Houston, Texas & Los Angeles, California
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| Posted: Sun Jun 24, 2007 11:57 am Post subject: |
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Dash, just like NYSE and NASDAQ short interest, this is definitely a good indication that whatever correction we have going forward from our all-time highs should not be that severe - at least not like anything we experienced during Fall 1998.
This is also why I don't believe the bull market is not over yet, although I think we will have a tough summer.
That all being said - if we are in the middle of a correction - my other indicators (such as the McClellan Summation Index, the ISE Sentiment Index, AAII, Barnes, % of stocks above its 200 DMA, and so forth) are telling me that this is not a buyable/tradeable bottom yet. |
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dash
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| Posted: Sun Jun 24, 2007 11:00 am Post subject: |
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Large commercial hedgers (aka the smart money) reversed their net long postion last week.
However small speculators (aka the dumb money) also reduced net longs by $5bn -- which for them is a big drop.
Sentimentrader.com comments on this development:
| Quote: | | That leaves them with a net long position worth approximately $11.5 billion - their smallest bet on a market rally since March 2003. Most of the time when these positions have dipped under $15 billion during the past seven years, the S&P 500 has rallied sharply going forward. |
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rffrydr
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Location: Sunny California
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| Posted: Sun Jun 24, 2007 8:40 am Post subject: |
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Positions getting thin with large drop-off in open interest commensurate with other lows for example. But notice large specs are just starting to get short this year:
http://www.softwarenorth.net/cot/current/charts/SP.png
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Today is the Tomorrow you worried about Yesterday! |
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dash
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| Posted: Wed Jun 20, 2007 1:00 pm Post subject: |
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Third chart down (NYSE Summation Index) looks a little ominous for the SPX:
http://headlinecharts.blog.com/1863775/
Also just eyeballing the SPX, seems too long since we tested the 200dma (not counting the move down in March) |
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nonzero
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Joined: 12 May 2007
Posts: 18
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| Posted: Thu Jun 14, 2007 2:20 pm Post subject: |
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| My guess is tomorrow S&P closing at or above 1525 so those 1525 puts become worthless |
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dash
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Joined: 12 Apr 2005
Posts: 473
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| Posted: Thu Jun 14, 2007 12:48 pm Post subject: |
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| Quote: | | It's not breadth I'm looking at anymore; it's stocks--and their stories. And that's just the ending. |
The author of this blog post doesn't think you can read anything into this 'story', but still it may be something worth tracking (his blog definitely is):
| Quote: | In any case, the level of activity in both ETF was very low until just at the end of February 2007, when we had the infamous Chinese mini-crash. After that, both ETF volumes perked up. But the UltraShort S&P 500 ProShares (SDS) volume increased much more. So Pat was wondering if this meant something in terms of sentiment.
Why is the trading volume of SDS (short ETF) almost 10 times more than SSO (long ETF)?
I really don’t know, but if I had to take a guess, I would say that people got really spooked when the market fell earlier this year. And maybe they suddenly discovered this new way to have exposure to the short side. |
http://www.tradersnarrative.com/strange-volume-dichotomy-in-proshares-ultra-etfs-1063.html |
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rffrydr
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Joined: 30 Oct 2005
Posts: 7645
Location: Sunny California
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| Posted: Thu Jun 14, 2007 10:33 am Post subject: |
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Weird thing about that one it that it goes up...and down. 
The cash S&P 500 has a large concentration of open interest in the June 1525 puts and calls. As of Tuesday, there were 190K in calls and 198K in puts outstanding. There is also a high level of open interest in the June 1500 calls and puts at 158K and 165K respectively
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Today is the Tomorrow you worried about Yesterday! |
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dash
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Joined: 12 Apr 2005
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| Posted: Thu Jun 14, 2007 9:59 am Post subject: |
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| Quote: | | One of the few things I've done right is catch the downsides on quick turnover of SRS the property "ultra-short." A simple trade with a simple idea. |
Glad to hear you've found an edge, and hope there's lot's of milk in that particular cash cow! |
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rffrydr
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Joined: 30 Oct 2005
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| Posted: Thu Jun 14, 2007 9:24 am Post subject: |
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One of the few things I've done right is catch the downsides on quick turnover of SRS the property "ultra-short." A simple trade with a simple idea. The attraction is the leverage with a little extra kick from ETF (mismatched) flows. What I'm trading however is 50 plus stocks, with funds of funds embedded in those. The computer is doing far more work than my couple lots deserve--I am truely "moving the market." This in a way not even mutual fund investing could come close to.
It's not breadth I'm looking at anymore; it's stocks--and their stories. And that's just the ending.
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Today is the Tomorrow you worried about Yesterday! |
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