I'm going to take the lazy approach and paste my latest response on CC.
Submitted by 2nd_ave (4588 comments) on Sat, 09/18/2010 - 23:25 #69518 (in reply to #69513)
analyst65-
Interesting points.
(a) My immediate reaction is that we have never had, and (in the absence of divine intervention) never will have "a just and fair, responsible, honest government running the affairs of the nations." Human nature precludes that possibility.
(a) In my opinion, life is inherently unfair (probably by design), and the markets are neither more nor less unfair than life itself. Which is to say I don't think the stock markets are manipulated any more today than any other trading venue in history. (What I tell my kids is that I believe God is fair, but that life in this world can be [and more often than not will be] brutally unfair. At the same time, I think we should try our best to level the playing field- but that would lead the conversation into a spiritual dimension, which is probably inappropriate here.)
(c) On the other hand, homo sapiens are eminently predictable, and I have great faith in the unchanging patterns of human behavior. The stock market (as Vad points out) would be the last place I would look for examples of either 'common sense' or pricing based on 'true fundamentals-' successful traders make their living on the conspicuous lack of both, as cops and lawyers make their living on the lack of same in other areas of life.
(d) I'm bullish for longer than a day or two, and even more bullish if we're talking a decade or two. But of course I retain the right to change my opinion in a second. You'll note I was quite bearish last week, and quite bullish this week. What all of that means- I really don't know. All that matters in the end is what I actually bought and sold, and when. As long as my equity curve rises, I'm happy. In fact, we all live and die with very little understanding of either life or ourselves- we just do the best we can.
http://www.marketwatch.com/story/equities-to-see-gains-in-months-ahead-citi-2010-09-18
ReplyDeleteBy Amy Hoak, MarketWatch
CHICAGO (MarketWatch) -- Investors in the stock market could enjoy a total return of roughly 20% in the next 15 months or so, according to a corporate securities strategy note from Citigroup, released Friday.
Citi’s analysts predicted the S&P 500 would end 2011 at 1,300, up 10% from where they expect it to end 2010, at 1,175.
The above targets are actually pretty close to my own, except that I see SPX 1200 at year-end, with plenty of peaks and valleys before then.
ReplyDelete2nd_ave: if I understood you correctly, a large part of your optimism about the market is based on the large degree of pessimism you perceive elsewhere.
ReplyDeleteHere is what David Rosenberg wrote on Friday:
"The American Association of Individual Investors survey showed that the bull share jumped seven points last week, to 50.9% (the long run average is 39%) and the bear share plunged seven points, to 24.3 (long run average is 30%). These are negative contrary signals for the equity market — as is the sub-22 reading on the VIX index. Complacency, yet again, is the order of the day."
These were the reading for the week ending September 10, and I am sure they were even more bullish for the week ending September 17. So I'd be very cautious now if I were heavily long the market.
I did a little more thinking about my desire to short FCX and it occurred to me that the only way I can lose a sizable amount of money is if I get my mind set on a certain market direction and then take a "stubborn" position in that direction (such as shorting FCX now at $81 and waiting until it drops below $70). Instead, I should approach shorting FCX as a trader, who is ready to cover his short if the price does not head in the right direction.
ReplyDeleteSo I lowered my sell short stop limit order for 100 shares of FCX to $80/$79.90 so as to get out of its daily fluctuation range and short it when it really starts going down. Moreover, my exit strategy now involves covering my short if FCX rises above $80 soon after triggering my sell short stop order.
Similarly, I just looked at the 1-year XLF chart and saw what looked like a rejection from the key $15 resistance level. So a trader-like thing to do would be to short XLF if it drops below $14.50 and then cover if it rises above $14.60. So I just placed a sell short stop limit order for 1000 shares of XLF at $14.50/$14.45.
David- I responded to your question with another post on CC:
ReplyDeleteAAII survey/ Contrarian indicators and breakouts newSubmitted by 2nd_ave (4590 comments) on Sun, 09/19/2010 - 10:05 #69531
David Rosenberg had this to say on Friday:
"The American Association of Individual Investors survey showed that the bull share jumped seven points last week, to 50.9% (the long run average is 39%) and the bear share plunged seven points, to 24.3 (long run average is 30%). These are negative contrary signals for the equity market — as is the sub-22 reading on the VIX index. Complacency, yet again, is the order of the day."
The above would normally be cause for concern if one is long. My thoughts right now:
(a) Contrarian signals work fairly well in signaling bottoms. However, how useful are they in signaling breakouts (which is what I'm betting on)? In order for an index/sector/stock to break out, does there not need to be high (even excessive) levels of bullishess?
(b) In addition, the survey only looks at overall sentiment. When I look at the semiconductor/financial/energy sector, or stocks such as BAC/CSCO/INTC/WFC, I certainly wouldn't characterize recent price action as highly bullish. So to some extent, maximizing gains on any rally here would require selective positioning.
(c) Does anyone have any research/data re the correlation of AAII numbers to periods when the markets have broken out of a range? For instance, did the bullish percent rocket to the nineties in '99? Did it drop to single digits in '09?
(d) I like the way Vad characterizes real-time 'pictures' as 'murky' at best. It all becomes clear down the road- but the money is made on bets placed in the midst of 'developing situations.'
What did OpEx bring me last week? My September $119 SPY put, which I purchased at $5.50 when SPY was around 119, was executed and I was assigned a short position in 100 shares of SPY. I have just placed a buy to cover stop limit order at $113/$113.1 for it.
ReplyDeleteAlso, 2 PXP $25 covered calls that I sold against my 200 shares of PXP were finally executed (last time they expired), and so my PXP shares were taken away from me at $26.10. Through repeated sales of puts and covered calls, I lowered my cost basis in PXP to around $19, so PXP was good to me overall. Maybe I'll get into it again if it falls to $20.
There is something else I am waiting for, which I think will happen: MON falling below $51 but making a higher low (i.e., turning around before it hits $45, and maybe even before it hits $50, as I suspect many people want to reload MON at $50). I'll enter MON under $51.
So for Monday, I would be happy with either one scenario: a gap up in the market and a run toward 1200 on S&P, in which case I'll hopefully be able to get out of my current SPY short, get into WATG, not trigger my sell short orders on XLF and FCX, and make mucho bucks on the way up since my portfolio is still net long now. Alternatively, a gap down and a decisive leg down is also fine with me, especially if my sell short stop orders on FCX and XLF get triggered tomorrow and my portfolio tips into the net short stance.
ReplyDeleteRe: AAII survey> 3rd and Goal/ Maximum Frustration newSubmitted by 2nd_ave (4591 comments) on Sun, 09/19/2010 - 10:46 #69532 (in reply to #69531)
ReplyDeleteLet me rephrase the above comment: If the global indexes are huddled against the trading public, and all indicators point to a 15-yard sell-off, what play do you think the quarterback calls? What's the goal?
China stocks - If you're interested and assuming you aren't already privy to the explanation for this week's Chinese stocks action, check out the recent DYP and DGW stories.
ReplyDeleteRe: AAII survey/ Contrarian indicators and breakouts newSubmitted by jack black (801 comments) on Sun, 09/19/2010 - 15:19 #69537 (in reply to #69531)
ReplyDeleteI posted somewhere above in this forum about it that I looked at the extreme AAII points and they PRECEDED a top by at least couple of weeks. One way to explain it is that a significant % of AAII is smart money. II results are very different as they are mostly dumb money. So, I don't see a sudden drop right now. But, I might want to consider a defensive posture at the end of the month.
Furthermore, if one looks at the 4 week average of AAII bull/bear ratio (subscription from sentimentrader) the picture is different, we are in the low range for bull markets and mid range for bear market. Nothing to get excited about.
Since so much emphasis is placed on AAII sentiment, I am wondering who are those investors. Not me. Anyone?
ReplyDeleteillini-
ReplyDelete"The AAII Investor Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. Only one vote per member is accepted in each weekly voting period."
http://www.aaii.com/sentimentsurvey
Not exactly a representative cross-section of individual investors, IMO. Personally, I've never been interested in joining any investing organization, and certainly not one that charges a membership fee.
ReplyDeleteMy guess is it would be mostly the old buy and hold crowd and longer term swing traders. Back in the late 80's I used to be a member back when it was a good way to get stock market data on cd quarterly. The data was all daily or longer term, no intraday.
ReplyDeleteBut you have to admit, we are at top of channel, and they have swung from heavily bearish, to now heavily bullish.
I think the Fed decides which way we go from here... More money printing announced Wed or not?
Yeah, "the old buy and hold crowd and longer term swing traders."
ReplyDeleteI used to be in that description but never joined AAII or anyone else ....never even heard of it until the late internet age.
I am not against scientific, mathematical polls but what is their population?
FYI, the monthly household unemployment numbers are based on 5000 calls. I would guess AAII numbers would be similar.
ReplyDeleteAAII, when I belonged to it, was aimed at small investors. If they have now swung to heavily bullish, so maybe that explains part of why we are at top of channel.
Another point is that mutual funds are at historic low levels of cash, meaning the rest is already in the market. That also helps explain how we got to top of channel.
new post
ReplyDelete