Just a heads up here.. this is the first day of distribution for the Nasdaq and S&P 500.. I have already begun baging major profits in this rally... a few more days of distribution and the rally is in serious jeopardy... Babak... with all due respect.. I think you should learn one valuable thing from this journal.... never fade a rally until you have price confirmation... So in this case.. the right time to start shorting... is when we break the short term trendline starting from April.... You see.. if you are right and we do collapse from this level.. why not wait for the price break then short... so you will be a little late-- big deal... the depth and magnitude of the breakdown will indicate if we really are in a new bull market.... Never, never try to top tick the rallies... because what can happen is we start to just consolidate and back and fill.. at this level.. before we move higher.... and you just have a lot of $ and time being wasted... therefore wait for the price breakdown until you know the move is underway... plain and simple.. Indicators are great when they work.. but in most cases they will be either too early or too late... but price and volume is always on time.. -- Hope this post helps.. --MIKE
Babak, Could you explain the indicators (1) and (3) below, and/or provide a link where I can find more info? Thanks in advance, and keep up the good work with the journal
Mark Hulbert of CBS MW wrote a good article on the Coppock ... Babak or anyone do you have a chart going back 30 (or more) years?
First to answer m22au's question, here is a link to a graph of the Coppock indicator (click on the small red download button and scroll down to pg 4 -- you must have Acrobat): http://www.investech.com/visitors/special1.html Second, the II numbers are out for this week and they show an almost exact position as last week. This level of bullish sentiment has been the hallmark of tops in the past (do I need to repeat that?). What surprised me most about sentiment or psychology this week was the market reaction to the Ryadh bombings. This was the big one, what many had been waiting for; the return of al-Qaeda. They are back, reorganized, restored and as deadly as ever. The death toll was reported at 29. This is clearly a lie. In fact it is more likely 10 x that number. It was a great tragedy. And it was the signal that the world is still very unstable. But what was the reaction in the market? Exactly. I wanted to concentrate on something which a lot of people have been talking about recently, myself included. Today the bond market rallied to a historic level (not seen since the 1950's). I had already mentioned three ETFs that provided ways to play this on the stock market: SHY TLT LQD With the exception of the short duration SHY, the other two look like classical break out plays. For some this is shocking but for others it is rather logical when you consider the recent statement of the Fed and their already stated position of 'whatever it takes' to stave off deflation. Of course, this is a neat-o way for the Fed to be safe from claims that the real reason they are reducing rates (or flooding the market with liquidity) is the weakness in the economy. As well the sentiment was hinting strongly that this was about to happen. On April 23 2003 Hulbert mentioned that the newsletters he followed were rather ho-hum about the already scorching hot bond performance. The contrarian view being that if this was not a real rally, the newsletters would have jumped on the bandwagon. That they were skeptical was important. And on May 8 2003 Brimlow mentioned that the best bond market timers were long. Very long. The bandied about cliche is that the bond market and the stock market are taking different sides. One predicting a weak economy and the other a strong economy (in the second half). I wanted to take a slightly different take on things and quote from Mark Boucher's "The Hedge Fund Edge" which, unlike its title, is really about everything financial. Boucher talks about the liquidity cycle and explains that this follows a pattern. The "first recipient of the new money are the banks, who in turn loan the money to the bond market forcing interest rates down all along the yield curve." The steeper the yield curve, the greater the incentive to borrow from the Fed at the discount rate and loan to the long bond market at a higher rate. Then it flows from bonds to stocks as portfolio re-allocators begin to respond. As well corporations can get easy credit and become flush with cash for new ventures. Then primary and secondary offerings begin to happen. This feeds into the actual economy as new jobs are created and capital put to work. But this process takes a long time. From 6-18 months to work itself out. Actually ever since 1954 virtually every stock market advance (as measured by the SP500) was preceded in time by a bond market rally (decline in bond yields). As well the tops in the SP500 correspond with sharp drops in bond prices (and higher rates). "This is not just arcane academic theory, it is cause nad effect and is an extremely valuable too lin determining the right time to aggressively buy or move out of equities in any one country." Is this what is happening? I don't know. What causes me to toss and turn in doubt is that never before has the Fed reflated a bubble so close after it popped. What they are doing, basically, is drinking at 11am to cure the hang-over from last night. Will the sheer amount of liquidity (its a lot!) force the market up? If it does, it will be a very, very, very bad thing. The market is not 'cheap' now. It shouldn't be rallying. The yield, the P/E and other metrics show that this would be a wobbly platform for the launch of a new bull. But the Fed is resolute. They are a very powerful player in the market and they might just force the hand of the other players. If this is a new bull, it won't be because of valuation, or because of a new group of stocks rising to lead the market, it will be simply pure liquidity that will trump everything else. Specifics? So if you want to be long this market...what should you buy? Obviously the stongest among the strong. And that right now is biotech. Still bearish on transports and it looks like I'm not the only one. And continueing to peel out the gold position (wish I had picked up the commodity and not just the stocks! ) And on a slightly off-topic mode...I was trolling the web and happened to find TraderMike's new messageboard at www.timingwallstreet.biz (TM for those that don't know is Mike Swanson who started trading, I believe, in the '00s and made some fantastic calls about the market and the economy and now has a hedge fund as well as his timingwallstreet.com site) So, naive little me, I sauntered over there to lurk for a few days and decided this week to introduce myself and to congradulate TM and his group for a great messageboard and wish them well. I also made the faux-pas of inviting the members of that messageboard to check out our humble digs on ET. I had no idea that this is the equivalent of hitting an old lady over in their universe. No sooner had I posted that, than it was erased and I was called an "arse", a "SPAMMER" and "parasite" in this other thread.
I had no idea that this is the equivalent of hitting an old lady over in their universe. No sooner had I posted that, than it was erased and I was called an "arse", a "SPAMMER" and "parasite" in this other thread. We can always have them over for a food fight, we do have the finest meats and cheeses here not to mention friutcakes and meatballs. The monthly charts of SOX,NDX SPX are keeping me long untill something breaks and I don't see that yet. The ultimate macro view is that the American consumer has to keep consuming or the whole world slides into an economic abyss. This is where they all sell most of their shit . Didn't Bush have something to do with getting Donaldson appointed. Think maybe they had that conversation about getting the mkt moving, hey maybe even something like nickles. I don't think George is planning on losing the election due to econ faux pas like his father and those boys in D.C. just may be a lot slicker than most are giving them credit for. Cycles are contracting, compressing ala Alvin Tofflers book. Most of the money in the mkts acts like what we used to call hot money, fast and furious to the next percieved actionable idea. Had to laugh the other day, some fund guy talking about 3 yrs. out, bullshit , the only one thinking 3 yrs out is my 13 yr. old thinking about being 16 so he can drive. It's going to be a wild ride. These are just my perceptions, I don't want to argue about them nor do I give a happy rats ass what any of the resident aforementioned food groups think.
Babak, I like your thread, and I am generally of the same mind myself on fundamental reasons for believing this baby's going lower. I don't place as much value on some of the technical reasons you cite, although they are certainly quite interesting. However, that kind of an analysis doesn't really, I don't think, give much of a clue as to timing. And in that regard, I believe you've been -- well, if you took a position, then yes, you certianly were -- rather premature. It's good to see your motto is "discipline over conviction", though, because you will probably need it. Anyway, I didn't want sit in your backseat and tell you how to drive, I was just wondering if you might give a fuller explanation to Jesse's question, above; curious minds want to know. Is there anything (I'm sure there is) that would cause to reverse your opinions, regarding your bearishness? Obviously the higher market the goes the "better" your analysis sounds (and the more mouthwatering it looks). So what would some of those things be? I know you say you've moved to a neutral stance now, does that mean you're staying out of the market until you can re-enter on the short side? You still wouldn't touch anything long? What would some of the things that would cause you go back in short? Do you have any plan for how many times you'll try re-entering short (because it can get expensive, real quick)? Personally (sorry, can't resist), having a longer term bearish view on the market myself (although I'm happy to be holding many longs, for now), I think we'll really know about it, I think it'll be clear when it's time to load up the book with shorts; I think if this baby's gonna break, it's gonna BREAK, and there'll be ample time and opportunity to get shorty. (Draw a trendline (remeber those!) from the march lows on the S&P. That thing is textbook. Even when you started this thread. At least maybe let her break that?)
That's great info, Babak. Seems that the 'Greenspan put' now applies to the stockmarket as well as the bond market. Should I take your comment that ... "ever(y) since 1954 virtually every stock market advance (as measured by the SP500) was preceded in time by a ... decline in bond yields" to mean that stockmarket advances without a preceding decline in yields should not be bought and not all bond market rallies will lead to higher stock prices (For example Jan 2000 to present) ? Given this, and also that the reverse holds true, (stock market declines preceded by weak bonds, eg. 1999) and not all bond market declines will lead to lower stock prices), then it would seem that this is only an indicator that could be used as a confirmation signal. For example, buying a broad based stockmarket index in early 2000 (based on lower yields) and holding until now, would not be a wise move.
Been reading your journal with amusement and amazement! Your logic is flawless, your writing is brilliant ..........but I do'nt know if you've noticed, the market could'nt care less. Do yourself a favour and read Mike's {trendfader?} posts again. Maybe you should memorise them! You think of yourself as the little boy who pointed out that the emperor was'nt wearing any clothes .........forget it ! Think instead of the guy wearing the sandwich board proclaiming the end of the world next Tuesday at 11:32 am.