Market Talk / February 25th - March 3rd

[Birchtree]

The pressure gradient will pull other investors into the market - was my point.

 

[robo]

Saturday, March 3, 2007
HOTS Weekly Options Commentary
Pete Stoclers

Earnings are good, the economy is strong, employment is full, the P/E ratios are in-line… The stocks that looked good a week ago still look good and they are cheaper. What could possibly cause the market to go down? In a word – fear.

When traders are over-extended, they can’t take the heat when the market starts to fall. That is a classic shakeout. Most people think… well I’m in it for the long haul and I’ll just ride it out. That mentality works for the first 10% move. By the next 10%, they are nervous and they are out. A big decline with a “V” bottom becomes a mere blip on the radar screen of a 10-year chart. However, seasoned traders look at those blips and remember the blood that was spilled.

Such was the case in 1998. I had grown one of the largest option order desks in the country and I had thousands of option traders using our services. The economy was strong, the earnings were good, interest rates were in line and the internet was creating a buzz. Out of nowhere, we had a big rally to new highs and a sharp reversal. Sound familiar? Everyone looked at the fundamentals and took comfort knowing that everything was still intact. It seemed that a hedge fund had lost some money. Initially, everyone thought… so what, it’s one hedge fund. The stock I liked yesterday is the same today, except it is 5% cheaper. Two brilliant men created the hedge fund in question and it was called Long-Term Capital Management. They were both founders of the modern day Black-Scholes option-pricing model (Robert Merton and Myron Scholes). They had a very “conservative” arbitrage model and brokerage firms felt very comfortable letting them leverage the positions. In 1998 one of the wheels came off when Russia defaulted on their debt and the whole house of cards came crashing down. The ensuing sell off in 1998 was huge and the SPY fell 25% in two months.


http://hamzeianalytics.blogspot.com/

 

[Birchtree]

Robo,

I like that Bill R. "The buying opportunity of 2006. If you weren't 100% long by August, what in heaven's name were you looking at? Your navel lint".

 

[robo]

Birchtree,

1360 on the S&P needs to hold next week or we could test 1340.

 

[robo]

Saturday, March 03, 2007
Portfolio as of 3/2/07...

I'm glad that's over. There's no use denying it or trying to sugar coat it; I took a good old fashioned butt whuppin' this week.

It was so bad in fact that I just spent a few minutes double-checking my math because I couldn't even believe the magnitude of the loss I took. Unfortunately my math was correct and I really was down 7% on the week. Remarkably, my blog portfolio did even worse on Friday than it did on Bloody Tuesday. I guess all I can do is dust myself off and show up ready to play on Monday.

I basically gave back 80% of my 2007 returns this week. Ouch.

Below is the portfolio as of now. For an example of how things went this week, behold the drubbing I'm taking in SYX. I wasn't satisfied having lost 8% in two days on it so I immediately bought it back so I could lose some more. Stupid, stupid, stupid.

http://stockbuddytrades.blogspot.com/

 

[Birchtree]

If you look at that portfolio it's no wonder he got spanked. If he holds and adds to his demise by buying more he'll do just fine. I like his style though.

 

[robo]

Saturday, March 3, 2007
An Explanation

Upon further reflection I have decided to discontinue the blog. What started out as a fun novel hobby has unfortuntely become a very time consuming chore, and definitely not worth the measly $12 a day in ad revenue.

I would like to thank the very small minority of readers who left supportive and kind comments on the blog, you are all truly class acts. Unfortunately, as I noted you are the small minority, and this week I spent far too much of my time weeding through venemous and vitriolic hate mails from ignorant scum.

Dealing with the wild swings in this bi-polar market is taxing enough without having to deal with the army of professional Haters who try to pollute your website with their hatred.

Some may think by giving up I am letting the haters win. And, maybe that is true. I never considered myself to be a thin skinned individual, but I found it very disturbing that the ignorant and hateful comments coming into my mailbox outnumbered the kind and classy comments by about 10 to 1 (and I'm being generous with that estimate). And that sort of thing can really taint your view of humanity if you aren't careful.

I had told myself that I would stop blogging if it was no longer fun. That time has come.

Best of luck to all the classy folks who supported this blog (you know who you are). And, well I won't tell you what my wishes are for the trolls and haters who relentlessly spammed me this week...

http://www.zentrader13.blogspot.com/

I will miss Zen's comments and Market opinions. The only thing he did wrong was turn Bullish! What a crime! He gets hate mail for that. I'm sure Tom gets plenty when we get a market turn and his opinion is on the wrong side.

It's called, " Investment Advice or Market Opinions".

NO ONE, NO ONE, NO ONE, NO ONE, KNOWS WHAT MR. MARKET WILL DO FOR SURE. NOT EVEN THE GUY WITH THE CRYSTAL BALLS. ALL JUST OPINIONS.

TAKE RESPONSIBILITY FOR YOUR MARKET DECISIONS.

I wonder if Tom is getting any apology emails for being in the safe-mode for this sell-off. Thanks TOM!!!!

Again, I will miss Zen!!!

 

[Birchtree]

Hell, even the ole Birchtree takes heat - but a little fire is good in the forest. Burn out the sprouts so the big trees can still grow bigger. Ain't that how it works. That should create some substantial animosity - I've got my image you know.

 

[robo]

Saturday, March 03, 2007
Market Week in Review
S&P 500 1,387.17 -4.41%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was very bearish. The cumulative advance/decline line fell, every sector declined and volume was heavy on the week. Measures of investor anxiety rose sharply. The AAII percentage of bulls plunged to 36.63% this week from 53.85% the prior week. This reading is now below average levels. The AAII percentage of bears soared to 39.60% this week from 22.31% the prior week. This reading is above average levels. The 10-week moving average of the percentage of bears is currently 31.4%, an above-average level. The 10-week moving average of the percentage of bears peaked at 43.0% at the major bear market low during 2002. Moreover, the 50-week moving average of the percentage of bears is currently 36.8%, a very high level seen during only two other periods since tracking began in the 1980s. Those periods were October 1990-July 1991 and March-May 2003, both being at major market bottoms.

Notwithstanding the recent pullback, I continue to believe that steadfastly high bearish sentiment in many quarters is mind-boggling, considering the 14.9% rise in the S&P 500 in less than nine months, the 87.8% gain for the S&P 500 since the 2002 major bear market lows, the cumulative advance/decline line recently hit a new record high, one of the best August/September/October runs in U.S. history, the fact that the Dow made another all-time high just nine days ago and that we are in the early stages of what is historically a very strong period for U.S. equities after a midterm election. As well, despite recent gains, the forward P/E on the S&P 500 is a very reasonable 14.9, falling from 16.2 at the beginning of the year, due to the historic run of double-digit profit growth increases and recent stock pullback. The S&P P/E multiple has contracted for three consecutive years. It has only contracted four consecutive years two times since 1905. Each point of multiple expansion is equivalent to a 6.6% gain in the S&P 500. Bears still remain stunningly complacent, in my opinion. As I have said many times over the last few months, every pullback is seen as a major top and every move higher is just another shorting/selling opportunity. I see few signs of capitulation by the many bears and their crowded ranks are swelling by the day on sub-prime and emerging market worries. Even most bulls have raised substantial cash of late, anticipating a meaningful correction.

As well, there are many other indicators registering high levels of investor anxiety. The 50-day moving average of the ISE Sentiment Index just recently crossed above the 200-day moving average for the first time since November 2005 and is already rolling over. The ISE Sentiment Index plunged to depressed levels in the low 90s three days this week. The NYSE Arms Index hit 15.98 on Tuesday, the highest level since record-keeping began in the 1960s. It also hit 7.99 on Thur., higher than at anytime during the major bear market bottom of 2002/2003. The four-day moving average of the NYSE Arms is an amazing 4.68, also the highest on record. The VIX had its largest one-day percentage increase in history on Tuesday. The CBOE total put/call ratio four-day moving average is 1.37, the highest since at least 1995 when Bloomberg began tracking the number. Nasdaq and NYSE short interests rose again last month and are very close to record highs. Moreover, public short interest continues to soar to record levels, and U.S. stock mutual funds have seen outflows for most of the last year, according to AMG Data Services. The percentage of U.S. mutual fund assets in domestic stocks is still the lowest since at least 1984, when record-keeping began.
There has been an historic explosion of hedge funds created with absolute return, low correlation or negative correlation U.S. stock strategies that directly benefit from the perception of a stagnant or declining U.S. stock market. Commodity funds, which typically have a low or negative correlation with stocks, have been created in record numbers. Research boutiques with a negative bias have sprung up to cater to these many new funds that help pump air into the current US "negativity bubble." Wall Street analysts have made the fewest "buy" calls on stocks this year since Bloomberg began tracking in 1997. "Buy" calls have been trending lower for eight months.

Many of the most widely read stories on financial sites are written with a pessimistic slant to gain readers regardless of their accuracy. Investment blogger bullish sentiment just recently turned a little bullish for the first time in months and is now at 32.4% Bulls, 29.7% Bears. Finally, the UltraShort QQQQ ProShares (QID) continues to see soaring volume. There is a high wall of worry for stocks to climb substantially from current levels as the public and many professionals remain very skeptical of this bull market and continue to trade with "one foot out the door."

I continue to believe this is a direct result of the strong belief by the herd that the U.S. is in a long-term trading range or secular bear environment. There is still overwhelming evidence that investment sentiment by the general public regarding U.S. stocks has never been this poor in history, with the Dow registering all-time highs almost weekly. This is serving to further widen the so-called "wealth gap." I still expect the herd to finally embrace the current bull market this year, which should result in another substantial move higher in the major averages as the S&P 500 breaks out to an all-time high to join the Dow and Russell 2000.

It is hard to believe, after the recent bombardment of pessimism and "crash" calls, that the average U.S. stock is still higher for the year. Based on the action so far this year, even more cash has piled up on the sidelines. I continue to believe that a significant portion of this cash will be deployed into true "growth" companies as their outperformance vs. “value” stocks gains steam throughout the year. Finally, I still believe the coming bullish shift in long-term sentiment with respect to U.S. stocks will result in the "mother of all short-covering rallies."


http://hedgefundmgr.blogspot.com/

 

[Aspiration]

Robo,

Definitely not intended as a criticism, as I have very much appreciated reading this and other insights into how you view the markets, but how did you decide on 1340 as a potential support for the S&P? I see why you chose 1360. It is a pretty clear support from the daily and weekly charts. However, I cannot see why you chose 1340. I would definitely appreciate any insight you can (and are willing) to provide into your decisionmaking process.

Again, not intended as a flame, but rather as an educational enrichment opportunity for myself.

 

[Spaf]

Will be closing this weekly thread and starting a new one!
Thanks for all the views and posts.
Regards, and be careful out there!
Spaf

 

[tsptalk]

I moved Apiration's question to the new weekly thread so robo will see it...

http://www.tsptalk.com/mb/showthread.php?t=4137