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Margin Calls and Behavior Shift

Posted By Barry Ritholtz On April 18, 2005 @ 12:03 pm In Markets,Trading | Comments Disabled

Aaron Task mentions [1] a fund manager who stated that Margin calls — which we have seen recently — are the end of the sell off. I have to disagree — they tend to be more like a 3rd inning situation, and even worse, beget more selling.

Secondly, I wanted to point out a particularly awful NYT front page headline today "Sudden Change in Wall St. Sentiment Underlines Fears on Economy [2]."  These shifts are rarely sudden; Rather, they gradually build over time, as people recognize a variety of factors and adjust to them. Oil, interest rates, weak job creation, slowing GDP — none of these items are new develooment, and many people on this site have been addressing them over the past year or longer. The only thing new is that writer’s (or editor’s) recognition of these phenomena.

Lastly, the market’s behavior over the past few weeks is sypmtomatic of an institutional shift in behavior and risk tolerance. Fund managers are no longer shopping for bargains — they are trying to preserve their jobs.

We may hear a lot of bottom calls, but I have a suspicion that most of the forthcoming bounces will be sold, at least for a few more weeks, if not longer.  I read the desire to be bullish and catch a turn as a sign of complacency.

Sorry to keep it so general, but I was travelling last Thursday and Friday, and I need to get back up to speed on some of my market internals and technicals. What I have seen so far is not particularly encouraging. Until I see enough genuine fear  and loathing of stocks, I am treating the recent drop as major damage that will take a much loner time to repair   . . .


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URLs in this post:

[1] mentions: http://www.thestreet.com/p/dps/cc/columnistconversation2.html#entryId10218077

[2] Sudden Change in Wall St. Sentiment Underlines Fears on Economy: http://www.nytimes.com/2005/04/18/business/18stox.html?ex=1271476800&en=538a51c780582680&ei=5090&partner=rssuserland&emc=rss

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