At the closing bell on Friday, I noted that so many of the World ‘s Bottom Callers (I even traded a few SPYs and QQQQs for a small loss) were too busy looking for a tradeable low, that it was unlikely to happen.

That seems to be the case today. Futures are ugly, and we are quite likely to see a hell of a whoosh down at the open.

Will this be a Black Monday? Is this the one?  It likely depends upon whether the buyers step aside and lets this bad boy play out.

Puts and VIX calls remain the best play here . . .

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Incidentally, as the day plays out, start thinking about who the goats of this market "correction" are. Who got it bass ackwards? Who nailed it? Who remained stoically Bullish in the face of all manners of evidence to the contrary?

Inquiring minds want to know: Who cost the public money, and deserved to be tarred and feathered when this thing goes to Hell?

Use the comments, and please avoid saying anything that will get you sued (this is a public unmoderated forum) — just the facts, please.


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UPDATE:  May 22, 2006 9:18am

Perhaps this discussion of Goats is premature; I certainly don’t want anyone to take this as gloating  or arrogance or anything like that. While it is still fresh in our minds, I simply want to ask the informed and erudite readers of this blog who is worth watching in the future, and who is a fade.

Lots of people revealed their colors during the move off of the 2002/03 lows; Consider how powerful it is to know who got it wrong — and who nailed it. That’s knowledge worth having in the future.

Category: Markets, Psychology, Technical Analysis, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

37 Responses to “Bottom Callers Step Aside”

  1. Barry,

    In addition to Europe and commodities getting clobbered….

    Japan -1.8% and India was down -10% at one point, not a typo thats TEN PERCENT, before a trade halt, then late recovery to close down -4%….

    Black Monday?? Lets see…

  2. Becky says:

    I think it’s remarkable that Richard Bernstein and Steve Roach became more bullish. And Michael Metz, the proverbial perma-bear, was correctly cautious!

  3. Becky says:

    May 8 – Howard Rosencrans said he expected a 15% drop and that the market was topping. Jeff Hirsch was cautious and warning, too. Barry James, a mutual fund manager, said the top was in and that the risks were high.

    May 10 – Chakrabortti said he expected a 7% drop in stocks worldwide between May 10 and the end of the year.

    These were all public comments either on CNBC or on the internet BEFORE the FOMC meeting.

  4. ML says:

    Does anybody think the commencement of CME Housing Future has anything to do with it? I thought it will depict the plight of the housing market in inescapable terms.

  5. FY says:

    “Predicting rain doesn’t count. Building the ark does.” – Warren Buffett.

  6. Nona says:

    At an April 18 meeting in New York City, astrologer (!!!) Henry Weinstein (AFund.com) said that the markets would be down significantly approximately 90 days after March 29th.

    Weinstein’s favorite asset class going forward? Cash.

    Good investment possibilities? Distressed properties, he said.

    Maybe it’s all in the stars after all….

  7. jm says:

    It is especially interesting that gold, too, is falling.
    Is there anything that isn’t?

    It would be nice to know whether any one particular type of market participant is leading the selling. Is it hedge funds? Mutual funds? Pension funds? Individiual investors?

  8. Detroit Dan says:

    I’ve been reading “John Mauldin’s” newsletter ever since I ran across a reference to his work here at Big Picture. Mauldin has been forecasting a downturn.

    Also, Mauldin recommended a book by Joseph Ellis entitled “Ahead of the Curve”. This book is unique in that Ellis maintains charts on his website that he updates as new data come in. Ellis has been predicting this downturn also.

    I sold a lot of stocks in March, based to a large extent on the very convincing arguments made by Mauldin and Ellis. Here are links to their websites:

  9. 23 says:

    Just flashed across my Reuters:

    1042 EDT 22May2006 – Investors should buy on dip – Citigroup
    ——————————————————————————
    Though a quick market rebound is probably not in the cards, inflation
    concerns may are likely worked into the market and a market “bottom may be not
    much farther below current levels,” Citigroup’s equity strategist Tobias
    Levkovich said in a research note on Monday.
    “The constant stream of rotating investor worries also causes us to believe
    that the investment community continues to scale “cliffs of concern” and that
    we will not necessarily get a cataclysmic crescendo of capitulation to indicate
    that it is now safe to buy equities,” Levkovich said.
    “In this context, we think investors (rather than speculators) should be
    buying into current weakness with the realization that everything is not likely
    to turn around immediately and that a degree of patience will likely be
    rewarded.”
    Reuters messaging rm://emily.chasan.reuters.com@reuters.net

  10. Ed Croft says:

    Fidelity UK’s most successful fund manager – Anthony Bolton, something of a guru over here, bought a substantial position of FTSE puts last week,, apparently of the order of 25% of his fund, and deleveraged expecting a market correction soon, but i doubt he expected it this soon… reported in the Investors Chronicle and the Telegraph.

    Most interestingly two of the Investor’s Chronicles senior columnists wrote headline articles the week before last about how to play the coming upleg, and the Trader column stated that ‘Only an irrational curmudgeon would forecast a major correction’ on the 9th May. Their latest online edition though, bragged about how they ‘foresaw’ the coming correction via a market breadth chart that was never printed, or posted, but hidden away in their technical charts region…. tells you a lot about the financial press eh!

  11. fred hooper says:

    This caught some attention over the weekend:

    http://www.timesonline.co.uk/article/0,,2095-2189601,00.html

    “We are very uncomfortable about predicting financial crises, but we cannot help but see a certain similarity between the current economic and market conditions and the environment that led to the stock-market crash of October 1987,” said David Woo, head of global foreign-exchange strategy at Barclays Capital.

  12. Bob A says:

    but won’t our fearless leader just solve everything with another $200 tax cut for the masses?

  13. B says:

    Wall Street is a group grope and listening to them dooms one to repeat the past AS THEY DO TIME AND AGAIN. That is, unless you believe it is a game of liar’s poker and they know they are screwing you. Either way, they should never be trusted.

    “Research in psychology and behavioral finance is surveyed for evidence to what extent experts such as PROFESSIONAL INVESTMENT MANAGERS or endowment trustees may BEHAVE in such a way as to help PERPETUATE speculative bubbles in financial markets. This paper discusses scholarly psychological literature on the representativeness heuristic, overconfidence, attentional anomalies, self-esteem, conformity pressures, salience and justification for insights into WEAKNESSES in expert opinion. The role of the prudent person standard and the news media in influencing experts is considered. The relevance of the literature on testing of the efficient markets theory is discussed.”
    Shiller (2001)

  14. DBLWYO says:

    The two most sensible and least arm-waving finance columnists I’ve found to follow are Jim Jubak and Jon Markman on MSN Money’s Investing site.

    Jim in particular has done a great job of both seeing shifts and finding investment themes to follow. Jon pays good attention to larger issues but seems to mostly follow trends. However he’s the principal behind MSN’s StockScouter as I understand it. Or at least one of the early designers.

  15. GRL says:

    My nominee for someone who’s been getting it right (in addition to John Mauldin, mentioned above) is John Hussman.

    http://www.hussmanfunds.com/weeklyMarketComment.html

    I have been reading Hussman religiously ever since a friend of a friend turned me on to him about 9 months ago. Getting an unrelenting diet of warnings from Hussman, Mauldin, and, yes, Barry Ritholtz, quite naturally I have become extremely cautious on the market. It is hard to be too optimistic, reading this crowd, who are all the more credible because they are not perma-bears.

    In my work tax deferred plan, I have been out of the market since January. The choices there are limited to broad index-based alternatives, such as the Russell and the S&P, so the decision was not too hard, though getting out in January turned out to be too early, and I felt like a schmuck up until about 2 weeks ago.

    In my personal accounts, I have had a lot more flexibility, which has been both a blessing and a curse. In those accounts, I have focused like a laser on individual names, and on cutting losses fast. On the other hand, the temptation to try to find the one thing that is still going up and try to trade it has been strong, to my detriment. For example, my one index foray, into the EWJ, turned out to be a flop, and I dumped it a while back. On the other hand, commodities and the precious metals scare the sh** out of me, and I have avoided them. One rule I have tried to stick to is: cut your losses FAST. If it isn’t working immediately, GET OUT.

    But, to stick to topic, John Hussman is someone whose stature will probably rise when people look back on this period.

  16. B says:

    That’s why Jubak recently wrote that we are running out of iron ore and copper. Paraphrasing.

    I think we have enough of both to wrap the planet in a metal shield ten miles thick. Now he writes of a commodity rebound. Even though history says we are near or at a peak and there is no rationale for his position. I guess it’s more pablum that it’s different this time. That said, commodities will not peak till the business cycle peaks. That’ll be when liquidity is choked off. So, if we aren’t going into a recession, we’ll likely mount another assault to higher highs. I believe the cycle is ending but that sounds a little too much like Jim Jubak so I’ll refrain from predicting.

  17. Brian says:

    Bill Cara nailed it.

    I think some hedge funds are blowing up out there. (Good riddance). Maybe another Refco. We’ll only find out about it after it’s over.

  18. Ryan Zoerner says:

    Nabors Industries reported what I thought were great earnings on the 7th of May. It saw some profit taking, but then never really made any new high. That to me, said it was time to get out. I sold it at the end of the session on the 10th.

    Another thing in the back of my mind was something I think the chief market strategist at Jeffries had said. Basically, he had said that the market had really seen a run-up ahead of the fed, the market had sure priced in a pause, and they’d better hope that they’re right.

    That to me was a great call.

    I already knew what the Fed was going to say:
    “We’re going to raise rates today and we’ll tell you about tomorrow when tomorrow gets here.”

    Another thing: The guys who’ve been running this market up are pushing around large sums of money and ought to know a bit more than I do, and I’m sure that they knew exactly what the fed was going to say as well. You’re job, as the individual investor, was to figure out whether they were actually going follow the game plan, or whether they were going to do the unexpected, just to screw you up.

    Really, in hindsight this whole drop-off was a complete no brainer. This was the perfect excuse and pretty good strength in which to begin profit-taking/short-run profit making.

    At the time though, I had a final exam, Math 222 (2nd Semester Calc.) on Wednesday night. The only thing I was right on was the Nabors.

    I think the commodites rally was really what was continuing to hold this market up (in conjunction with no fed “certainty”).

    When the oil company profit cylce had run its course, and the fed had revealed its hand, it was time to hop out.

  19. Ryan says:

    Nabors Industries reported what I thought were great earnings on the 7th of May. It saw some profit taking, but then never really made any new high. That to me, said it was time to get out. I sold it at the end of the session on the 10th.

    Another thing in the back of my mind was something I think the chief market strategist at Jeffries had said. Basically, he had said that the market had really seen a run-up ahead of the fed, the market had sure priced in a pause, and they’d better hope that they’re right.

    That to me was a great call.

    I already knew what the Fed was going to say:
    “We’re going to raise rates today and we’ll tell you about tomorrow when tomorrow gets here.”

    Another thing: The guys who’ve been running this market up are pushing around large sums of money and ought to know a bit more than I do, and I’m sure that they knew exactly what the fed was going to say as well. You’re job, as the individual investor, was to figure out whether they were actually going follow the game plan, or whether they were going to do the unexpected, just to screw you up.

    Really, in hindsight this whole drop-off was a complete no brainer. This was the perfect excuse and pretty good strength in which to begin profit-taking/short-run profit making.

    At the time though, I had a final exam, Math 222 (2nd Semester Calc.) on Wednesday night. The only thing I was right on was the Nabors.

    I think the commodites rally was really what was continuing to hold this market up (in conjunction with no fed “certainty”).

    When the oil company profit cylce had run its course, and the fed had revealed its hand, it was time to hop out.

  20. C says:

    Citigroup’s Levkovich’s “cataclysmic crescendo of capitulation” has to rank right up there with Barry’s “whackage” as some of the most brilliant pieces of wordsmithing in the last few weeks.

    Position: long Citigroup

  21. theman says:

    Aw..come on guys….We have to send a few kudos to Barry here.

    Barry has been talking about a meaningful correction for quite some time.

    Barry: you the man.

  22. Nona says:

    Yes! Yes! Kudos to Barry.

    In fairness, I think those of us who contributed names here thought Barry was calling for OTHER names.

  23. anon says:

    maybe nobody mentioned these because it was too obvious?….

    fade: kudlow and cramer.

    BR: who you callin erudite?!
    jw

  24. Bob A says:

    I would love to see some arguments about why the Russel 2000 and Value LIne Arithmetic Index shouldn’t gravitate back to their longer term trend lines, and why this isn’t as good a time as any.

  25. jcf says:

    Barry,
    You have helped save a lot of fairly innocent (yet open-eared) investors their a$$. Take a bow and then, of course, reassume your characteristic modesty.

  26. Groove says:

    Aren’t the congratulations for some gurus mentioned above a little premature? After all, from my computer screen, the market is barely threatening to touch lows we had in (gasp) April, and doesn’t even count as a correction. Sure, anyone who called for a downturn in Mid-May (and not for the 15th time in 2 years) deserve a hearty pat on the back. Other bears may need another 500 points or more on the Dow before they begin to be right. We may get there, but I’m not willing to spot them the 500 in advance.

    By the way some of you are hinting that this is the beginning of the end, I assume you are way confident in your shorts (you are short aren’t you?). So far, all I see is a pimple exploding on a bull’s a$$.

  27. theman says:

    Some interesting data points:

    Saudi Market — down 50% from its high in the past few weeks. (Google news: “Saudi stock crash”)

    South Korea index — EWY — Down nearly 15% from its 52-wk high.

    Brazil — EWZ — Down nearly 25% from its 52-wk high.

    Japan — EWJ — Down nearly 11% from its 52-wk high.

    And now for Americans:

    Nasdaq — Down nearly 9% from its 52-wk high. (2167 vs. 2375)

    S&P500 — Down nearly 5% from its 52-wk high (1260 vs 1326)

    DJIA — Down nearly 6% from its 52-wk high (11097 vs. 11709)

    Just how fat is your a$$? And how fat are your pimples?

  28. Agreed that its premature — I wanted to gather the list of goats while it was still fresh in our minds.

    And the very second I take a bow, Mr. Market will kick my bloody arse from NY to London and back . . .

  29. dave says:

    Let’s be fair. Barry has been on target since day 1. Dave

  30. scorpio says:

    dont follow Cramer that closely (went to 100% cash in Feb while selling Miami condo and relocating to Midwest), but always seemed to hear him harping on India, MRVL and UNH. those are gonna leave a mark…

  31. Becky says:

    Yes, absolutely Kudos to Barry!!! And a specially huge thank you to Barry for the Paul Desmond interview.

    (I thought he meant OTHER smart people excluding himself so I didn’t mention him before. Everybody here who reads this site KNOWS Barry was right! :))

  32. vf says:

    i mentioned that stocks will need an injection of liquidity to get off the schnide and today’s rally was perfect example.. the late day rally corresponding with a puking dollar tells me the Fed was in the market today, probably buying 10YR notes at 5% (the high).
    macro hedge funds sold their bonds, sold the dollar and bot stocks…
    the Fed can’t manipulate the market without some cost.. the dollar tells all

  33. adam says:

    vf: that sounds about right.

    BB has the chopper on the tarmac, and the blades are starting to rotate.

    Inflation smation: this is an incipient liquidity crisis. If central banks don’t act now, we’ll be in a nasty global recession at this time next year.

  34. TonytheTiger says:

    I’m not a fundamentalist so I don’t understand what is said above. I’m an option trader and I base my analyst by the charts. The market is extreamly oversold and we have a double bottom. Look for volitility-back and forth to work off the oversold status. 1255 and 1253 are key supports for the SP.

  35. erik says:

    i get dollar for dollar the best research from Institutional Advisors of vanceuver bc. bob hoye does the research and it has been spot on for as long as i can remember. they place themselves squarely on the rational fringe of the investment world.

    they expect a correction similar in magnitude to barry’s.

  36. Groove says:

    My a$$ isn’t fat, and I went heavily long the US market in early summer of ’03 for about 55% return so far. Prominent bears have been issuing gloom and doom scenarios for that whole run – hard to ignore, but glad I did. This is still a pimple of a correction until confirmed otherwise.

    As for the Saudi market, there has been a bubble in bubbles, but as per usual, most everyone missed the real ones like the Saudi bubble.

  37. theman says:

    Groove:

    Great call on going long US equities in ’03.

    No one can rationally desire a market correction — unintended consequences can cause unexpected damage.

    But when you see runups such as Brazil’s (EWZ) more than doubling — you begin to wonder whether the fundamentals have changed or is it dotcom style momentum trading….

    Regarding the a$$ — I personally wish I had a giant cushion — cash that is — but like most everyone, I have to haul it back and forth every day to work…

    Best.