I was talking to a hedge fund guy today who is 100% short. His argument is that this month is the reverse mirror image of Dec 1999 so we still have about 3 months to go. I disagree with his comparison for the following reason. I think Dec. 99 is actually _similar_ to this month because of the huge short interest in anticipation of Y2K. When Y2K came and went there was massive covering that lasted for 2-4 months. I think a lot of people/funds now are short/hedged/out of the market in anticipation of August 14, the SEC deadline for CEOs to sign their balance sheets. There are more shares short now than ever. Just like Y2K I think Aug 14 will be a non-event and will basically be the catalyst for the bull. I tend to think this month is like a reverse mirror image of Feb/Mar 2000. a. Pessimism is at an extreme now just as optimism was at an extreme then. b. Huge money on the sidelines now. No money on the sidelines then. c. The earnings yield of the S&P 500 divided by the fed funds rate is at an extreme high not seen since 1982. It was at an all time low in Feb 2000.
Vishnu, Great post! Very thought provoking. (and I hope you are right, but that's too personal for a trader to say)
eh? That makes no sense. Why fool with theories??? Trade em like you see them. If you spent half as much time selling the downtrend as you did looking for the bottom, you'd be golden...
ok I'm going to put all my hard earned reputation on the line and say that Aug 14 (SEC's ball) will be a non-event.
The problem is that you are the only one who cares about your opinion of an event that no one can foresee. What will be is what will be.
i think it will be a non-event also but I think people's expectations are different. I think money is sitting on the sidelines until that date passes. Big mutual funds are not taking any headline risk right now that one of their guys is going to not sign.
It may or may not have a profound effect upon the market. However, any investor with half a brain is going to check out the list at the SEC web site to see who has signed or has not signed. Those CEO's and CFO's that have signed stand a much better chance that their companies stock will perform better, than those who have not. I agree with you that it is quite possible that the market could take off for those simple investor confidence reasons. Mom and Pop who do not know everything that you and I know are going to think that it is ok now and return to the market. Time will tell...either way we will go with the flow.
IMO, The CEO's signing and all that won't have any amazing, instant effect and switch market from bear to bull, but cumulatively, over weeks/months, will bring more private investers back in. Getting to this point has been a process, it won't be any one event that brings us out. Should be nifty for trading volititlity, though "If you walk 5 miles into the woods, you must walk 5 miles to get back out" Paul