Who's Bearish?

praetorian2 · May 10, 2003

Quote from taodr:

Praetorian; NVDA there had to be some bulls stampeding there.
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I personally do not follow tech stocks, so I don't know, but gut feel is that it was massive short covering. I know of 2 good hedgies who were short into the number. They both agree that the number was ehh... maybe a bit better than expected, but nothing much. Besides, the stock is super expensive. They are also not giving future guidance.

I think the shorts panicked again here too.

praetorian2 · May 10, 2003

Quote from cornholetrading:

Just for discussing purposes have you thought about the fact that you can't find anyone who is bullish as a sign to think about that side as a contrarian point of view. If I remember right all I ever heard about on the way down was the bullish commentaries and very few bears talking. Now it seems everyone is a bear just in time to short into a bounce/move all the way up. Also the ET contrarian point of view seems to work more often then not. It seems everyone who is getting press, start threads, ect is predicting crashes down to SP 400. At the same time as the highs of nasdaq Maria and cohorts were slapping high fives on CNBC and talking about books like DOW 40,000/New Economy.

A friends father who runs a fairly large fund of funds talks to numerous managers/hedge funds and for the most part they had all been looking to buy once the outcome of the war had been decided. I don't know if they are quite so bullish at the current levels or not though.

For disclosure purposes I currently only trade intraday and have no positions long or short. I was just trying to bring up points for discussion.
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First good ET thread in a while. Thanx guys. I have thought about this. I have thought about it a lot. I am still about 80% long. But the longs are mostly gold stocks and foreign ADRs (playing the dollar weakness). I personally think we are headed lower in the long term. In the near term, I'm a bit more agnostic. I intend to keep tight stops on my short positions with the exception of my puts.

A favorite indicator of mine is my own trading win/loss ratio. I have only had 2 profitable days in the past 12 days. That is something to think about. My strategies work best in a market with a slight upside bias. In the past, my strategies have always stopped working about a week or two before the top. I don't think that this has anything to do with poor trading on my own part. I am trading well lately. I only am down about 3% this month too. Just getting chopped around.

larrylivingston · May 10, 2003

hey guys larry livingston is back cause once again i can not believe the ignorance on this site and it reminds me of where my money comes from...number one as far as the technical chart posted its amazing that u guys see a bearish chart...yes that does look like a five year head and shoulders but u have to look at chart multi-dimensionally(is that a word) not in a vacuum...from head top of the head to the bottom of the shoulders was like 600 points(and another 600 points leading up to the head and shoulders on this chart) now when the neckline was broken in a true head and shoulders the initial drop should have been much more violent...now some may argue its retesting and then dropping(which also can happen) but given world conditions when the neckline was broken a true technical/fundamental analyst should recognize zero conviction on the sellers part and slow accumulation of real buyer and short covering...its funny you guys sound like the bulls at nasdaq 5000 you get so use to a trend that u forget to READ THE TAPE of the market and see whats really going on...now what happens from here? well yet again u guys hand me easy money since you have only studied the OBVIOUS in the market(wow how i crave you market cliches)...anyway im sure none of you have studied what happens in a FAILED head and shoulders so i will give you the answer--a VIOLENT REACTION to the upside as the slow buyers become more agressive and as new buyer begin to chase the market and of course the trustee short seller who scramble in disbelief...if your 100% short here as most of you claim ill catch you at the next market top when your 100% long if you make it that long...anyway short term we should be headed to 9200 if you want a specific call out of me...this is gonna be a fun couple months

Jeffo · May 10, 2003

Why is there no volume on the head and shoulders chart? And why do gurus never have volume on their charts?

praetorian2 · May 10, 2003

I think that another interesting point is that the financials led this rally from the start. They look tired. On friday, the BKX broke under the uptrend line from the march lows. It looks stalled out at the 800 mark.

The other leader was the yhoo/ebay/amzn triumverate. Those 3 look weakish as well lately and have not been keeping up with the recent rally either.

EBAY has been in a holding pattern for 2 weeks while the market rose.

YHOO has done nothing in 6 weeks. It was down on a large up day on friday.

AMZN has done ok, but looks extended.

Now these 3 could be marking time before a move up. Or, this could be a topping pattern. I am of the opinion that they actually go higher (honestly). Yet, they have not done much lately.

Jeffo · May 10, 2003

There was a rumor on Friday that C (Citigroup or Citicorp whatever) was going to buy somebody, forget who it was. That brought down C and the financials.

Babak · May 10, 2003

re the financials, they aren't that strong really (once you look under the hood):

From Barron's (May 5 2003)

LAST WEEK, THE DOW Jones Industrial Average finally broke out of a month-long pattern to set a fresh new high above the March high. Since other major market indexes had done that weeks earlier, the Dow's lack of confirmation had ruffled a few feathers among technical analysts (see Getting Technical: The Markets' Mood, "Still Waiting For the Dow," April 30).

After all, how could we have a true rally without confirming breakouts? And can one index rally while another falls?

Ultimately, though, only major changes are important, not these minor wiggles. The major change happened March 12, when the market as a whole made a 180-degree turn and began to rally. (The Dow did not make a new rally high largely because its most heavily weighted component -- 3M -- fell apart in April. But 3M remains in a rising trend from last summer.)

Sector-rotation buffs like to watch the financial sector, and banks in particular, for true signs of a new bull market. From a fundamental perspective, when the economy begins to recover, companies need to invest in equipment and inventory.

From a technical perspective, we have a precedent for the banks to be leaders during the early stages of the business cycle, which eventually gives way to leadership by technology, industrial and then raw-materials stocks. New bull markets need the banks to be among the leaders, and based on last week's action, that may be the case.

Or is it? A key benchmark of the banking sector is the Keefe, Bruyette & Woods bank index (BKX) traded on the Philadelphia Stock Exchange (see Chart 1). Last week, it vaulted over a key resistance level to its highest level since last July, suggesting that banks are back in favor.

But as most chart watchers know, nothing moves in a straight line for very long, and the BKX has been doing that since the start of April--arguably, even since the March 12 reversal bottom. If emotions are getting too strong and sentiment too bullish, prices will trade like this and can easily overshoot levels where they are "supposed" to take a breather. In other words, they run through resistance levels.

The problem is that the technicals are not supporting the index, setting up the possibility of a false breakout. When emotions rule, swings up and down become exaggerated. And given that the broad market is still well within the major trading range in force since last July, buying this breakout would appear to entail more risk than is prudent for ordinary investors.

The technicals behind the BKX are the same as those behind any stock. While there is no volume reported on the index itself, the volume for the majority of component banking stocks has not been impressive. Rallies need volume to continue. Call it their fuelâand fuel for this rally is lacking.

The price momentum for bank stocks hasn't been much to write home about, either. That leaves us with unimpressive volume, sentiment and momentum, and if we consider that the traditionally slow season for stocks is upon us, there's nothing left in the technical toolbox to excite us about the sector.

The BKX, an index of bigger and more national/international companies, isn't the only banking game in town; there also is an index for regional banks. The Merrill Lynch HOLDrs regional banks trust (RKH) is a basket of regional bank stocks traded like a stock on the American Stock Exchange (see Chart 2). Since bottoming in March, it, too, has rallied, but unlike its bigger cousin, it has not yet come close to meeting its previous highs.

Another benchmark, the Nasdaq Financial 100, is an index of the largest financial stocks listed on the Nasdaq Composite index (see Chart 3). It includes banks, brokers, insurers and financial services providers, so it is more representative of the financial sector as a whole.

What is most interesting on this chart, aside from the index failing to reach its old highs, is that it has been underperforming the Standard & Poor's 500 since the March market bottom. Not shown on this chart is its comparable underperformance to the Nasdaq as a whole.

All of this throws cold water on the claim that the current bullish phase of the market is being led by the financials.

And that in turn casts doubt on the staying power of the general rally. That does not mean that both the broad market and the banks in particular won't regroup and power higher. It just means that both of these markets are beginning to look a bit tired.
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marketsurfer · May 11, 2003

remember the ocean is huge and the tides are very strong. stronger than anyone of us----

surfer wisdom.... staying long here

praetorian2 · May 11, 2003

Quote from marketsurfer:

remember the ocean is huge and the tides are very strong. stronger than anyone of us----

surfer wisdom.... staying long here
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Surf- You scare me. I really do respect your thoughts on the market. I do not like having an opposing position to yours. A very heartfelt best of luck. May the better man win. In the next few days, it probably will be you. Longer term, I really do think I am right, but timing is everything.

Babak- Thanx for the article. Very interesting. I have only really relied on the BKX. I guess I am missing a bigger picture. Look at COF though. That sh*t is nuts. Stocks like that which are clubbing the shorts are skewing things. Thanx again.

Great board guys. Keep it up. Very interesting stuff.

OPTIONAL777 · May 11, 2003

Blue Chip Economists Trim Growth Forecast

Sat May 10, 2003 06:38 AM ET

WASHINGTON (Reuters) - Private economists trimmed their forecasts for U.S. economic growth still further and now regard even the second half of 2003 with pessimism after a slew of data showed the U.S. economy still struggling to recover.
The closely watched Blue Chip Economic Indicators newsletter said its panel cut growth forecasts for each of the next three quarters, extending the steady erosion in the survey's outlook that began last summer.

Gloomier still, nearly two-thirds of the more than 50 business economists on the panel said risks to their forecasts for growth in the second half of the year were on the downside.

"In large part, our panel members grew a bit more pessimistic over the past month because most of the latest economic releases and private sector survey results signaled that recent economic activity remained quite subdued," said the May edition of the newsletter.

Blue Chip said its panel forecast a second-quarter growth rate of 2.1 percent, down 0.1 percentage point from the 2.2 percent projection offered in April.

Forecasts for the third and fourth quarters of the year were also trimmed by 0.1 percentage point, to 3.5 percent and 3.7 percent, respectively.

"The paring of consensus estimates of GDP growth over the remainder of this year reflects diminished expectations of growth in personal consumption expenditures, business inventories, capital spending and industrial production," Blue Chip said in a summary of its latest survey.

Its May forecast pegged 2003 gross domestic product growth at 2.3 percent, down from 2.4 percent projected in April and the 2.4 percent growth achieved last year. This was the fourth month in a row the panel has cut the annual forecast.

Disappointing employment and manufacturing data in April show the economy likely began the second quarter on a sluggish note, following a weaker-than-expected initial estimate of first-quarter GDP growth of just 1.6 percent, Blue Chip said.

While most analysts still expect the quick, decisive military victory by the United States in Iraq will produce a rebound in the pace of consumer spending and business investment, the panel was scaling back just how soon and by how much the pace of overall growth is likely to accelerate.

"Business inventories are not expected to grow as fast as originally thought due to lingering cautiousness on the part of businesses about the likely strength of aggregate demand going forward," it said.

The U.S. economy lost 48,000 jobs in April, notching the third consecutive monthly decline after a 124,000 reduction in March and 353,000 loss in February.

"Indeed, payrolls have dropped in six of the last eight months," Blue Chip said, adding the plunge in weekly hours worked to a cyclical low of 34.0 a week was "particularly discouraging."

While the return of mortgage rates to their recent lows likely signals housing demand will remain reasonably strong for a while longer, cool weather and a very modest improvement in vehicle sales will likely leave April retail sales little changed from March, the private survey said.