Opening disclaimer: I am not trotting out the past to show what a great contrarian I am. Truth is, I have not come close to fully taking advantage of the bull calls last spring and summer. Given what has gone on in the precious metals, it has been all I could do to manage risk to a break even.
That out of the way, this article was posted last May when it was very hard to be a bull:
“Led by near suicidal sentiment among the gold ‘community’, the broad markets recently embarked on a southerly course as well, culminating with ‘dumb money’ sentiment at very bearish levels in technology, energy, financials, industrials and on out to commodities. The last time sentiment was in such a compelling (contrarian) bullish structure was after the damage inflicted upon markets by last summer’s acute phase of the euro crisis.”
Flipping the above on its head today…
Led by near pervasive and still-growing bullish sentiment, the broad market is continuing upward on its course and is culminating with ‘dumb money’ sentiment and momentum being set to over bullish levels. The last time there was such consensus on the economy and the stock market may well have been in 2000.
“Think about the election year pattern, think about how wildly bearish sentiment has become, think about the market’s need to shake out the dumb money prior to rising and most of all think about how policy makers need to be perceived as doers of good; as part of a solution, as opposed to chronic purveyors of an inflationary regime that has been in force most intensely since 2000.”
Policy makers are not only thought of as part of the solution, they are revered far and wide in a reverential and growing rabid manner. This is the ultimate bull rationalization and it is the underpinning of confidence (great word) in today’s market.
In July this was written:
“There are still articles showing up in the MSM talking about what a good idea it was to ‘sell in May and go away’. But the truth of the S&P 500 chart begs to differ. Yes, it has been a nerve wracking couple of months, but as of Friday the SPX is above where all but the most astute of the ‘sell in May’ contingent got out.”
There are now articles showing up in the MSM talking about the Great Rotation, the Dow’s all-time highs and a new era for the US economy, which has weathered the Euro crisis and myriad domestic issues as it continues to strengthen. All the talk of inflationary policy makers has gone the way of Goldilocks.
“I do not love this market by any means. But I am still long (and profitable) several positions that were bought down near the lows (Lithium, Rare Earths, a tactical global fund, a global bond fund) and others in technology and energy added since.”
Well do you remember how hard it was to be bullish last summer? Now it is easy to be bullish. Too damned easy.
“Last week as SPX tested but did not fail support at the EMA 200, I held, white knuckles and all. This market may yet prove that the dumb money sold in May; especially if the rally ends up going on long enough to drag them back in again before any coming change to bearish again.”
The dumb money is holding without a care in the world.
Another post from August:
“But even if the market tanks tomorrow and stays tanked, the dumb money sold in May. Sentiment structures said so then and ‘price’ says so now. The big question is whether or not the dumb money will buy back in setting up the opposite scenario to May.”
One opposite scenario, comin’ up?  No comment on timing, see new post.
One year ago, March 2012, people were flying to Los Angeles and gearing up for an investor conference dedicated to one and only one company: Apple. That's right; the entire conference wasn't just about trading stocks; it was about trading AAPL. (I was going to show you the site, but the URL now is dead and parked, although their Twitter feed - dormant for the past nine months - is still viewable).
It's kind of remarkable that so many indexes have made lifetime highs recently including, of course, the Dow 30 today, without Apple's participation. AAPL has fallen 40% from its peak, but in spite of this, the once-largest company in the world having this kind of collapse, the rest of the market has merrily churned higher.
If you are a speculator, the extreme situations currently in play in the broad stock market (95% of the way to a potential ‘triple top’ scenario price-wise, and 80+% of the way time-wise) and the gold market (impulsive price drops amid growing concerns that the bull is dead despite rising money supply data) as of March 1, 2013 are the situations that you wait for.
In short, pivot points are the place to deploy capital (either to the short or long side) for big gains. The stock market has been on a cyclical trend for 4 years and a secular, mostly sideways trend for 12 years. Gold has been in cyclical downtrend for 1.5 years and a secular uptrend for 12 years. That is all well and good but trends can be a grind, filled with ups and downs, stops and starts.
Accomplished traders know that the news has little to offer other than occasional context, and mostly entertainment value. This chart is our latest installment in the category of you-just-can't-make-this-stuff-up.
Look at the two articles published by Bloomberg recently. Then, compare the dates the articles were published to a daily chart of WTI futures. Oil was getting ready to launch for the moon. The orange arrows point out the specific days that Goldman and Barclays issued their bullish reports. Sure, the odds are pretty good that the light, sweet, and sometimes crude stuff will hit $100 this year. But for now, all we have is entertainment value.
For your reading enjoyment, here are links to the full articles:
Brent at Nine-Month High on Chicago; Goldman Sees Tight Supply - Goldman Sachs
Oil May Head to $100 With Two-Year Support - Barclays
Apple's Quarter Was Lousy, But Stock Still Headed To $1,000 - Forbes (sorry,couldn't resist)
Originally published at Trade Flight Plan.
This week was a strange week for anyone that just started opening their 401K statements again. For those that are new or been trading for a few years, this week certainly holds up to what must seem as a “once in a blue moon” event.
Imagine what this week must be like when seen through the eyes of a 16-year-old day trader that’s accustomed to racking up over 30% annualized returns. Obviously something must be wrong. If not how else can the markets go down 2 days in a row? I mean – “OMG!”
Of course I’m being sarcastic yet – not by much.
I have recently been mulling over a post financial crisis phenomena. That phenomena is the increasing tendency of business leaders, policy makers and politicians to lie, spin and bullshit on a constant basis and in such an obvious manner that even the most cursory level of analysis and critical thought reveals the lie.
Some recent examples:
1. This past week the G-7 and G-20 group of leaders were meeting and the topic du jour is "currency wars". Japan has recently gone Full Monty in the money printing department where they are not even bothering with the ruse of claiming their "independent" central bank is just managing money supply rather than the more offensive printing to devaluate. Ironically they have become somewhat more honest in their efforts to manipulate their currency lower in order to sell more Toyota at the expense of German Volkswagens.
The other G-7 countries have responded to this by saying "we must do everything possible to avoid currency wars" and then they go on to say that "a country is not engaged in a currency war so long as the reason they are money printing is to improve their domestic economy and not to devalue their currency". If their currency ends up being devalued as a by-product, well that is OK. So as long as you don't say the reason you are printing money is to devalue your currency then you are not in a currency war. It's kind of like firing missiles at your neighbour not being an act of war as long as you don't say it is an act of war.
2. China miraculously always reports economic numbers which show their economy is growing by 8% per year. This week they reported a 25% increase in exports to countries which simultaneously reported a decrease in imports from China. Somebody must be lying...
3. Public companies have raised the practice of excluding "extra-ordinary items" from their earnings reports to an art form. Of course these "ex-out items" are always losses, with the result being that their exclusion increases reported earnings and creates the superficial impression that their stocks are cheap. The practice is so endemic that aggregate reported operating earnings are now 15-20% higher than real earnings.... each and every quarter.... without fail.
4. The US government insists that its debt/GDP is lower than all the other western countries with a reported ratio of 83%. They get to this number by subtracting all the US Treasuries held by their Social Security Fund to pay for public pensions. So they conveniently subtract the assets of the Fund from their debts but don't bother to add the liabilities of the Fund, which would be on the order of a further 75% of GDP. If they just included these bonds held by Social Security (like all the other countries do), their debt/gdp would be 108%, putting them just behind Italy and Greece in the shitty credit category.
5. And the big lie to beat all big lies (with the exception of there not being any anthropologic climate change, of course) is the Federal Reserve buying trillions of dollars in US government bonds in order to artificially suppress interest rates so we will all be forced to pay too much for other assets in order to actually earn some yield. Their logic is that if they artificially boost the price of risky assets we will all be fooled into thinking the world is growing more prosperous by this "wealth effect" and this will raise our confidence and "release the animal spirits".
As a result, they believe, with this renewed confidence we will all go out and spend like a bunch of drunken sailors, and businesses will confidently build new factories so that the myth of prosperity will morph into the reality of prosperity. The deception is that the wealth created by any asset arises from the future income it generates (or the expenses it eliminates) not the price you pay for it. By forcing people to pay too much for assets you are reducing their wealth, not increasing it.
So my open question to all Slope of Hope readers relates to the impact of chronic exposure to saturation lying. I believe that the people which are actually paying attention to world events can easily see through the saturation lying and have a pretty good idea about the true state of the world. I also believe that the "American Idol" masses aren't even listening to the lies, so for them at least it is falling on deaf ears. Furthermore, even though the unwashed masses are poorly informed, they still possess a collective wisdom that tells them that all is not right in Hooterville. So what purpose do the lies serve and what impact do they have on our confidence to invest and spend in the future? Do we willingly go along with the lies because it is consumes less energy than building the proverbial bunker, or do we become more conservative and cautious?
As a side note I think the primary audience for the "everything is OK" meme being spread relentlessly could be the algo machines. The headline this weekend that they will "read" is that "G20 agrees to avoid currency wars" (FT). The algos either don't know or don't care that it is a lie and so their deductive logic will be: "Not being in war is good thing...buy stocks, sell Yen". So the mere fact that machines dominate trading volumes and can't tell a lie from the truth makes the lie effective, no matter how ridiculous we carbon based life forms find it.
One can’t help but look at the financial markets close as of Friday and not shake their head in bewilderment. For anyone (including myself) that has expressed caution since the beginning of this historic rise we are left scratching our heads. The mantra of “Don’t fight the Fed” has just been spot on. However, that saying was used far before, and for other reasons than to explain what we are currently witnessing today.
Some only read the headlines trying to extrapolate any discernible information for what we see taking place. Others just use a “going with the flow” type strategy because they don’t know what else to do. It can work for a time however, it can set oneself up to do exactly the wrong things at the wrong times.
It's a wonder that Pump 'n Dump schemes continue to try and prey on unsuspecting investors. Although it's hard to imagine this stuff is legal, the frequency of penny stock solicitations in our inbox suggests these schemes are alive and well.
Every now and then, an email slips through that really offers some nice entertainment value.
The latest solication arrived last week, on 12/12/12 of all days for ticker symbol PFNI. You would think that the Psychic Friends Network Inc., of all companies, would have an edge in forecasting future stock price appreciation. We are not making this stuff up.
Just for kicks, a few days later, let's take a look at how PFNI is faring in the markets with its stampede of new investors. The yellow arrow points to the daily price candle on 12/12/12, when the spam - er marketing - email was received.
Instead of heading to the $1 level very soon, as prognosticated by Elliott Dobbs, esteemed publisher (but obviously not a psychic), we actually crater to nearly zero the past two trading days. You just can't make this stuff up.
All of us are afraid of something. To say or think you are not afraid of anything is self delusion. Lack of fear is not bravery either. Bravery is being afraid and still following through and taking care of the task at hand.
There are two fears we must overcome to be successful traders as these two fears will hinder and handicap your ability to make money while trading markets. These fears can freeze you in your tracks. Not only will they hinder your abilities as a trader but but also handicap you in all other aspects of life as well.