Tuesday, October 20, 2015
The Murky Depths of China
At market extremes, why do financial markets consistently frustrate the majority and reward those positioned 'contra' to the crowd? It's no conspiracy.
When a majority of traders are positioned for a market decline (in cash, short stocks, or long puts), conditions are in place for a rally:
(a) A large supply of available cash that can be put to work.
(b) High levels of short positions that must be covered.
(c) Few sellers remain ('who's left to sell?').
The market is 'done going down' and primed for an upside move.
When a majority of traders are positioned for a market rally, the opposite holds:
(a) Little cash available to drive prices further.
(b) Few short positions (no tinder).
(c) Few buyers remain ('who's left to buy?').
China is both a short-term and a long-term buy here, in my opinion.
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Hey MarkW, what doe the mb stand for?
ReplyDeleteViolent moves in stocks can also signal a change in leadership, which is what I think the correction and increased volume and volatility of the last couple of months is signalling. It could be a top, but it could also just be the market changing from loving healthcare/biotech/social media to some new sectors. I think it is a move to financials and value-oriented stocks, but it will only be apparent in hindsight.
Been looking through the recent results of a few small regional banks and they do seem to be improving. Many of these are still pretty reasonably priced, so I think this may be an area of growth going forward as housing and autos and the consumer improves.
ReplyDeleteBB, Klarman pdf, sure man. Mahalo as they say in the Islands.
ReplyDeletejoec004@gmail "dot" com
Sent it to you, so you can go ahead and delete your email address from here.
DeleteAnother one I found really helpful is Tweedy Browne's "What has worked in Investing"
Deletehttp://www.tweedy.com/resources/library_docs/papers/WhatHasWorkedFundOct14Web.pdf
Basically, it proves if you are investing for longer periods, you will get outperformance by buying:
cheap p/b
cheap p/e
insider buying
beaten up stocks
smaller cap stocks
Put together, cheap, beaten up small caps with insider buying are the best.
Judging by the futures, tomorrow might be the gap up day we've been waiting for. After all, if I were short this market and saw the steady higher lows and higher highs over the past few days, I would put a stop at today's highs in SPY and close my shorts if they were exceeded. Futures have already exceeded them, so we might get an avalanche of stop orders triggered tomorrow at the open...
ReplyDeleteLooks like good numbers out of GM and stock up almost 5%.
ReplyDeleteIn general I think the auto cycle has a long time to go, so all the companies like FCAU do well for the next few years. I also own parts maker MRE.TO.
RACE starts trading today - will be interesting to see how it does.
Geek looks really good to me here. Makes sense that it would work now that people have no interest
ReplyDeleteGREK
DeleteEROS - 300 employees? in UK not India?
ReplyDeleteBABA is down? Damn man, what's going on?
ReplyDeleteMB are my initials.
ReplyDeleteI learn something every day. :)
DeleteI thought it would be MW?
DeleteMarkW is his alias. He's a spy
DeleteSecret Agent initials are mb, now he has to shoot you.
DeleteKeeps dropping so fast I can't get sell orders in before it drops again.
ReplyDeleteVRX getting hammered on a short seller report, but IBB hanging pretty well. But shows the downside if we start getting some bad news in the biotechs.
ReplyDeleteFCAU down 3% even with RACE up 10%. Could be because of the tax ruling court case that they lost, They have said it won't be a big hit financially, but maybe more to this still coming.
ReplyDeleteI grabbed a little RACE this morning. Just so I can say I own it. Plus I think it gets to a $13-$14 Billion valuation based on 40x multiple
DeleteBB, thanks again.
ReplyDeletePerusing, have not heard Max Heine's name in 30 years who trained Price (always look at his holdings) like Klarman.
Liked this "Wall Street can be a dangerous place for investors. You have no
choice but to do business there, but you must always be on your
guard. The standard behavior of Wall Streeters is to pursue
maximization of self-interest; the orientation is usually short
term. This must be acknowledged, accepted, and dealt with. If
you transact business with Wall Street with these caveats in
mind, you can prosper. If you depend on Wall Street to help
you, investment success may remain elusive."
I was regretting selling Eros at $20 but now I'm not. Holy hell
ReplyDeleteMaybe now it's time to buy a little of it, since it is back to the strong support established in Spring/Summer?
DeleteJust for the heck of it, bought a little now at $16.30
DeleteAfter its recent intraday bottom at $15.50, it made a higher low and a higher high, which is encouraging. Placed a sell stop limit order at $15.50/$15.40
DeleteInvoked the rule of "not letting a profit turn into a loss" and moved my sell stop limit to my purchase price: $16.30/$16.20. Let's see how far this will take me. :)
DeleteEROS - Right where I had placed my original stink bid.... No, I'm not gonna throw more money at it, let it go to zero without me..
ReplyDeleteDamn, bounced right at S2.
Delete