interesting change of heart today.

Discussion in 'Trading' started by dac8555, Feb 26, 2007.

  1. dac8555


    I made an interesting observation today. I am sure you caught it too.

    over the past year+..the market has reacted very well to LBO news, and pumped up the market on almost every occasion, while many hawkish comments have been dismissed.

    today...despite the largest LBO in history, the market eats crow. as soon as it opens.

    I find that "change of heart" quite important. I am going to look at more opportunities net short for a while.
  2. i saw this too.

    three points: 1) greenspan scared the market today with his recession talk, and 2) pop media has been obsessed with a correction lately, 3) with exception to the nasdaq, the indexes are relatively -unchanged- since the last decent rally on 1/31 (bernanke take off day).

    considering this, you might want to use this as an opportunity to short bonds and buy indexes.

    or maybe just short it all... hell with it; who knows.
  3. hah , I noticed the same thing...18 minutes earlier...


    Registered: Jul 2005
    Posts: 105

    02-26-07 12:13 PM

    So far today the major indices are in the red. The last few months when a few large M&A deals were announced the markets rallied big. Pre opening this morning it looked like today would follow this trend. Sentiment may be swinging some.

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  4. dac8555


    actually the point i was making was there seems to be more of a bearish shift in equities. people are possibly beocming more afraid to buy.

    immediate term i agree with you. longer term...i think the bear is getting closer.
  5. in retrospect this was a great observation...I hope you acted on it...
  6. nice ... now being astute traders .... going forward ... tell me

    what "change in sentiment"
    would make you buy equities ( other than for a bounce ) ?
  7. what if on Monday or Tuesday there is no selling pressure, and no JPY movement? Suddenly the 'bear' is over. And to add to it, a good economic report or two.

    No one knows whats going to happen, and I don't expect it so soon, but its possible. stocks are very cheap right now; just no upside momentum. especially considering weak USD, and that oil is manageable (less squeezed consumer).
  8. this is precisely the psychology that led to knife catchers getting slaughtered in the post march 2000 price action.

    the media is trying to rescue the psychology. CNBC/Bloomberg/Yahoo...all peppered with 'computer glitch'.
  9. i'm not disputing the validity of the selling -- i'm just saying that march 2000 and this market are completely different. all of the PE valuations were in the 50+ range on the major indices.

    even that argument of record margin and leverage is weak, considering how much more net cash is out there. i'd be curious to see the number in percentage context of total investable funds out there. there's a lot more money out there, and nasdaq is half 2000 levels, s&p is 10% below, and dow (which is perhaps the most irrelevent) is the only one slightly above (1000 pts?). People are only leveraged because its so relatively cheap, and downside is minimal. Furthermore the game has changed - there is a flight away from long only mutual funds, in search for return. All things cycle...

    earnings are gigantic now compared to years ago. Clearly, there's a distaste for stocks right now, even in comparison with pre-bubble times, considering avg index earnings growth is 8-10% right now, and PEs are cheap.

    I'm arguing fundamentals here, not just charts - since I use both to trade. Our economy isn't perfect here, I'll concede, but its about as good as its ever been, and the bear argument isn't convincing beyond charts and trendlines.

    I live in southern california (where the housing boom is most ridiculous), and nowhere do I see the consumer -generally- affected by whats going on in housing. There's plenty examples of unfortunate people blowing up on mortgages, but in every economy there are weaknesses. Generally I still see people running to the mall buying their ipods, clothes, breast implants, and whatever you can imagine.

    There's a LOT of wealth in this country, and the unfortunate (job losses) and unintelligent (yes, some or most of these buyers were just stupid about financial planning) who bought adjustable ARMs that were 50% their income range are NOT the majority. With record employment, and upticking WAGE INFLATION, the refi and cashout boom will be successfully financed. Remember what drove this housing runup in the first place: distrust in the stock market turning into a search of safe haven for tons of liquidity (housing). What happens when there becomes a distrust in the housing market? Where does that money go? Either the stock market, or savings accounts. And for you guys that argue there's no money out there (its all loaned), you're wrong. There's a crapload of unborrowed cash out there.

    Eventually people will figure out that the stock market is relatively cheap (as long as earnings growth is anywhere close to where it is), and PEs will grow to match growth rates. This will be a boom, probably one that will aim too far. And then it'll be worth a correction.

    This is a fear promulgated correction, and has nothing to do with fundamentals, which eventually win (just as they did in 2000). One interesting point: S&P at May 06 before correction peaked at 1325. From there to now, you've had only 4.5% appreciation. With overall inflation considered, you've done WORSE than cash being in the equities market the past yr. This is the type of underperformance I'm talking about being priced into the market.

    There's your bull case. Anyone not buying this 'falling knife' on the way down hasn't considered this. Sure, there may be a few percent downside, but the upside here is much much greater.

    Heck, goog is trading at 23 forward PE with a 5 yr 30-35% forward annualized growth rate. Next year's growth rate will likely exceed even that. The multiple contraction is already priced in too far. Time for it to expand again.

    Enjoy your 30-50 pts down you might be lucky enough to scalp in the S&P ... One more perspective: 1 trillion $ in ARM resets for 2007 isn't that much money. Most of that will be successfully refi'd, so perhaps lets say 20% default. Thats $200 billion in defaults. Lets say banks have to worst case liquidate homes at 25% off from purchase price (remember many did not purchase at the peak. some purchased before the runup). Thats a $50 billion transfer of wealth. In comparison, the US stock market lost $630 billion in market cap this week.

    Get perspective. When its all done, homes will be a bit a cheaper, resi contruction will suffer a little longer, etc.. but the heart of the economy is still strong, the consumer.
  10. yen up another pt (115.90 from 116.90) .. if this holds overnight, looks like more selling.

    once the jpy settles down, Ithink thats a good buy indicator. Or once US equities stop responding the the USD selloff against yen... another good indicator for 'safer' entry.
    #10     Mar 4, 2007