Funny thing today: None of the Trolls showed up.
Its astonishing (but not surprising): Let the Dow rise 30 points on sub par volume, and they are out in full voice. Today, not a peep out of them.
You know I love debate, but have little patience for someone who posts 6 of these in a day:
Looks like that correction call is a loser!
When is the market gonna crash?
You must be embarrassed by that call!
Ironically, the trolls and nasty emails — you should see the crap I get from a sub-section of Real Money subscribers — are a great source of data for me.
Over this past weekend, I had a conversation with a friend who runs a nice sized hedge fund — he was short and getting very nervous. "I’m about to lose my whole year’s gains on this trade." He’s a hotshot trader living the fast NY single life, dating underwear models (and losing his hair).
I told him my email hostility meter was spinning out of control, and that’s a bad sign for the markets! Herb Greenberg always says that a sign he knows he’s onto something when the reaction is fierce and obnoxious. Monday night, I laid out the full case to him for why the topping process was in full force, and why he absolutely shouldn’t throw in the towel and "get forced in." He doubled up on Tuesday, buying NDX puts and betting short on SPX (I assume futures).
I rarely give unsolicited advice like that to traders — it screws with their heads — but he was reaching out and I wanted to make sure he didn’t panic himself into something foolish.
Here’s the email I got after the bell:
"B – Thanks for making me focus on my discipline and my methodology. I bet too large and it was dumb
…snip
Tell your troll buddies thanks! I covered just enough shorts today to pay for my next Ferrari. You should sell THAT as a service — you will make a mint!
So all you Trolls out there: Kevin — the balding guy in the red F430 spyder with the Victoria Secret’s model sitting next to him — says muchos gracias!
~~~
Kev, I know the Trolls would want to say Your Welcome.
This was supposed to launch last nite — but it glitched!
Consider this a belated launch
:-)
http://www.immobilienblasen.blogspot.com/
On Tuesday, I added incrementally to my DIA (Oct 115)puts. I thin that I was the only person who purchased puts that day. I figured I’d average in to cover the red that I have experienced. Purchasing them felt like going to a diner where no one else was eating. So I picked up a to go order! Your blog and a few others (Bill Cara (billcara.com), Tim KNight (tradertim.com) and Robert Colby (robertcolby.com)) have been wonderful supports to my not thinking that I’ve not lost my mind.
Here’s a word that I found in the Economist Editorial (08/05 – 11) that I wanted to share–it has market implications at times, and I’m sure that many of the bears (I’m agnostic!) have felt this way over the last 6 weeks or so: “In chess they call it a Zugzwang, the position that arises when your next move, any next move, is liable to lead to disaster.”
LOL, How do I get a job at this hedge fund? I work hard and love Ferrari’s!
Me too!
Hi All-
Your comments/wisdom/suggestions welcome on the following.
My wife and I are in some ways your typical investors, in other ways not. The “not” part is that we have a financial advisor who took us on as a favor to a mutual friend. We have a nice nest egg, but nowhere near the minimum this guy usually takes on. He’s an old pro, a decent sort and has given good advice. His fees are reasonable (flat 1%) and he actively manages the portfolio with discipline. We are well-diversified in a pile of mutual and bond funds (currently 75/25) in equities. Without an overly aggressive posture, we have had returns slightly above those of the market for the two years we’ve been with this advisor.
My question is this:
I have nowhere near the professional experience or education of many of the posters on this site. I think what I do have is a good layman’s understanding of economics and the basics of the market, and more importantly, a certain ability to (a) know what I don’t know and (b) pick out the smart guys in the room. Like say Barry Ritholtz for example. In other words, my BS detector has served me well in this world. Also, as Clint Eastwood said, “A Man’s Got to know his limitations.”
So… Although I am not accumulating firearms and salt pork, I am firmly on the side of Barry and others who point out that this market ain’t got no legs.
But what to do?
On the one hand, we are well-diversified and have even tweaked the allocations a bit towards a more defensive posture.
On the other hand, the idea of just sitting here waiting for the correction is rather annoying.
On the other, uh, foot, as a non-trader active or otherwise, anything I could do (like calling the broker and getting more into cash) seems dangerously close to market timing.
All comments other than those making reference to my mother appreciated.
Thanks.
Amur
The NYSE topped by my measures on August 23rd. The Nasdaq topped on August 8th. I’ve only seen one move like this on the Naz in the last ten years and it was 1/3 to 1/11 of 2006. That move had the same characteristics.
Now, I’m not outright calling the market manipulated but there were basically two or three days where Naz prices were jammed through the roof. 8/15-17. Was it a contrived event to shove the shorts? I don’t know how or why but I am highly confident those days and days since were extremely manipulated. Prime the pump to draw in buyers? Similarly, I believe the 1/3-11 days were pump priming days for a blow off rally where money was distributed. I can actually this but I can’t say exactly how I do. But if you saw what I was looking at you’d be extremely suspicious of what the motives were in those moves.
That is not to say we cannot get a “real rally” start to develop but this is NOT a real rally. I hate to sound all conspiratorial because I’m generally not that type but some shenanigans are definitely taking place.
For that reason alone, I believe your thesis will be borne out. I believe the cycle lows will be on October of 2007 though. That is an extremely rough estimate and I surely wouldn’t trade on that but it is based on time series work and cycle theory work. So, maybe you won’t be on the cover of BusinessWeek this year but maybe next.
August NOT September
NAZ loses 36 points in 1 day for a Ferrari … nice trade …..how about the 150 points up the previous 4 weeks , what did he lose then
as he commented though ,
he bet ” too big and it was wrong ” , ,,,,,,and then doubled up……… trader or gambler ? …..glad he made the $$$$$ but he didn’t follow his discipline the second time either
Yesterday and todays declines can be attributed to only one thing…the lunar eclipse which occurs today Sept 7 across the world. (but be cognizant of the very rare, every 1500 years, saturn jupiter mars T square working in the background which will bring this market to its knees this year. (crash !)
and for the record , I’m net short 15% on a beta-adjusted basis …….. not taking shots at you BR , but think your buddy ‘s way too aggressive for any shop
Great post. Thanks for the insight too on the conversation between the market players.
Amur
Sounds to me like you have an itch that must be scratched. I suggest you take a small % from your nest egg and open a trading account. If you believe we are in for a correction, as I do, you can do one of the one following depending upon how risk adverse you are: purchase an ETF that is inverse to the NAS, or short the QQQQs; or, if you really wanna let your hair down, you can purchase some index puts.
I can tell you that I moved nearly all of my 401k account to cash/bonds after last Friday’s rally because September is historically the worst month of the year for the market. October ain’t too great either. Not sure what will happen over the next two months, but I will be long again before November 1st. If you have enough patience to wait for market extremes, the biggest problem I have found with market timing in the 401k is the limitation to EOD trades.
Bon Chance
Ah, September.
The humidity is fading and the air is turning crisper and cooler. The days are growing shorter. The Homies are issuing their Q3 warnings and their stocks are falling like autumn leaves.
It’s my favorite time of year.
Amur. I know many people in your situation, and it probably describes all of us bears to some extent. I would tell your financial adviser that you are bearish and let him know you want to reduce your exposure to equities pronto.
I suppose there’s a line between market timing and being a prudent long term investor, but it’s not always clear where that line is…
“On Tuesday, I added incrementally to my DIA (Oct 115)puts. I thin that I was the only person who purchased puts that day.”
Leisa,
I bought a boatload of puts on Tuesday, to add to a fleet I already had. I am probably evenly long and short right now. Puts are in homebuilders and mortgage lenders. Just out of curiosity, why do you buy puts on DIA and not small caps? Don’t small caps always fall more in a situation like this? I also put some money in Profunds Ultrashort small cap fund, it goes up 2% for each 1% fall in the Russell 2000. Of course, if you’re timing is off, you get double the whack too. There’re no short-term trading restrictions on that fund.
Sincere thanks to Josh and Craig H. Worthwhile ideas to follow up on. I think I subconsciously realize that I’m being a bit too passive here. Time to get more defensive.
Thanks guys.
Also, it amazes just how much boosterism there is in the financial sector. Yes, I know that there is an incentive for these guys to be perma-bulls, but even our financial advisor— by all accounts smart, sharp and honorable (and not on commision) goes on about how earnings have never been better yadda yadda yadda. And the dining room of the Titanic was lovely.
Just don’t see what sustains this beast into the year to come.
Again thanks much.
Amur
“I suppose there’s a line between market timing and being a prudent long term investor, but it’s not always clear where that line is…”
To be or not to be, that is the question, and a damn goo one at that. I am long term and sometimes get caught up in the short term noise.
I love this board because it keeps me grounded in reality and prevents hasty actions by confirming my convictions.
I should have bought some index puts Tuesday. I didn’t watch things throughout the day, but based on the deltas and where things were Friday, the highs should have pushed the prices down to my limits. The order almost cleared Friday, and the indices went quite a bit higher on Tuesday. You can often spot a manipulated rally by the put prices failing to drop enough. My other puts from the last two weeks were already worth more than I paid for them yesterday.
heh…nice closing line to that post, barry.
Bob…I buy dia/spy puts because I feel like there is more room for them to drop given the weakness already experience in the other indices. I’m still waiting for the shoe to drop in dia/spy, although I acknowledge that they will likely hold up better. I also have som BAC/WFC puts….WFC has 20% mortgage portfolio. BAC, with MBNA, credit card exposure. They both continue to rise and I’m in the red.
Sweet story, Barry. I love stuff like that.
I got chased out of long positions in BUD, SUNW and the QQQQ yesterday. Short biotech now. There’s a good sized 2B top developing in the $OEX that has certainly gotten my attention of late.
Leisa,
What is your favorit SPY or DIA put at this time? I was looking at the SPYXX Dec. 130’s. Should have bought them Fri at 2.20 now they are 3.60 or so.
I am looking to buy 100 contracts or so of the SPY puts. Dec?, Nov? Oct? expy? Thoughts anyone? Trying to hedge a 70% long equity portfolio.
I’m so short the market I could walk through doorways without opening the door. Now’s my time to make some money with the Profunds “short” plays like URPIX. Thanks, trolls!!
I’m booking a Greek Islands cruise and renting a house afterwards on the Amalfi coast next year to celebrate.
Watch 615 on the OEX, if/when it comes. Not usually a fibernacho aficionado, but 615 is the 50% retrace of the 2000-2002 OEX decline.
When the SPX hit its 50% retrace in Mar04, it was unable to get past it for seven months. Don’t know if this similar level in the OEX will cause a mirror reax, but it might.
I mention this because a lot of bullz seem to be making some hay out of the fact that the OEX has made a higher high above the May level of 604.
Given this major roadblock at 615ish, I don’t see the OEX making a higher high as particularly bullish. It just has some unfinished business to attend to.
Once OEX gets thru 615 (if/when), there is room to 670 which would put the SPX at 1440-1450. But that might have to wait for a while.
The mega-run that bully is expecting won’t occur until OEX clears 670. There’s mostly air b/w 670 and the all-time high at 846. Don’t expect this until 2008-2009, if it happens at all.
In the meantime, watch for 615 to get hit. Only about 1.5% higher than this week’s high. Then look for a decline back towards 542-550 with the SPX retreating to 1175-1193.
This scenario will likely unfold with a mid-Oct top and a hard decline into late Nov or early Dec. I would guess that most bears and bullz are looking for Sept/Oct weakness and do not expect a 4Q decline. So count this as a variant view.
Leisa,
Yes, that makes sense. You definitely didn’t need to risk much.
I too think banking is in for a hit, but the timing is harder. I have Jan 2008 puts on FED (option ARM merchant) and LEND (subprime) and some 2008 & 2009 for CFC and WM.
With all the involvement of the investment banks in the securitizing (and now retailing) of subprimes, I was thinking of buying puts on that segment, but it looks like the market already expects a lot of volatility there for whatever reason.
I did buy some XLF (financial sector spy) Jan 2008 puts because they seemed cheap, but maybe should have got the 2009s.
I think we are definitely at the inflection point. Bear-wise, this is probably the best chance in my lifetime to make money.
A great. ballsy piece of writing, Barry. Your insights, as always, are invaluable. I wonder what costs more, a Ferrari or a Victoria’s Secret model for a girl friend.
Allow me to propose an explanation for the decline in trolls:
No one takes you seriously anymore!
Oh yeah, I would have also asked you guys for advice on dating underwear models, but (a) I’m married and (b) the ones I could afford would be from the 1975 JC Penny Catalog.
Amur
Jdamon…IMy puts are SPY DEC 127’s and DIA DEC 110’s, 115’s, SPY OCT 131’s. I also hold BAC NOV 50’s–Bob, I may have had to go further out. WFC Jan 32.5’s; MS OCT 65 AIG Nov 65.
But, I’m certainly no expert in any of this stuff, so there is nothing to read into any of the above other than this is just one person’s holdings. I’m mostly cash with some other small holdings. If it all goes south, then perhaps I will have to resort to being an underwear model, for that might be all I have!
per jcf:
“I wonder what costs more, a Ferrari or a Victoria’s Secret model for a girl friend.”
I think that you already know the answer to that question. Just extrapolate. :P
it would be unfit to to close out this thread without posting the lyrics (and chords!) to “High Fashion Queen” by the Flying Burrito Brothers/Gram Parsons:
E B7
There’s a place everyone of us can go to
E
Maybe you have been there once or twice
B7
Where all your friends just look at you and whisper
F# B7
And they want to give you nothing but advice
E B7
When you walk in they all know what you’re after
E
And the higher that you get the more they’ll see
E E7 A
In a dark room filled with music, wine and laughter
E B7 E
Your eyes keep searching for her constantly
A E
Is it that one in the corner with her eyes filled with tears
C#7 F# B7
Or is she the one who’s having fun drinking too much beer
E B7
Every night it’s the same sad old procedure
E
The doorman winks at you on your way out
E7 A
Cause deep inside he knows just what your after
E B7 E
And he’s got something you can’t live without
SOLO
A
There’s nothing new that can be said about dirt
E C#7 F# B7
And there’s nothing left inside your heart but the same old hurt
E E7 A
Of an old love’s fancy life has left you stranded in a dream
E B7 E
Ain’t you glad you’re a high fashion queen
B7 E
Ain’t you glad you’re a high fashion queen
B7 A E
Ain’t you glad you’re a high fashion queen
>From “The Return Of The Grievous Angel”
A Tribute To Gram Parsons
Almo Records 1999
Irving Music
I’m single, good looking [so i’m told], and made enough on selling my .com to spend my time reading this blog and sailing –and have a full head of hair– SO where does one find a Victoria Secret model exactly?–
Leisa,
I’ve been trying to go for 1+ year leaps in my taxable accounts to take advantage of lower taxes on LT gains and also because there’s a little more safety since your timing doesn’t have to be perfect, though I have gotten burned a couple times. I’ve been buying the shorter term stuff in IRAs.
Quick answer–there are 7 variables that determine option pricing–called “the Greeks” because they are greek symbols–clever. Anyway, violatility is one factor–right now, because of the run up in the R2K, options, especially puts, are expensive–that is you pay a lot relative to the share price of the index to by a put contract. That is because the R2k has run up so much, traders are willing to pay more for “insurance” and plus other [like you for example] think that is where the bigger downside is.
The VIX, often spoken about here, ,measures S and P 500 volatility–it’s very low–so, options, puts if you’re bearish, are cheap [relatively speaking].
Therefore, if one was to want short exposure, better to short [via funds or trades] the r2K, and use options perhaps for SPYs
hope that helps, but suggest reading up on options before getting in that sand box.[there are 6 more “greeks” to undersatnd…]
cheers
Leisa,
Thanks for the info, I am going to look at those puts. Watch out on the WFC puts, I know people who know people and from what I understand, WFC is still in great shape and not expecting to take any hits from the decline’s in Mortgages. They do so much servicing that as rates go up, their prepayment models show them making even more money as people are less likely to pay off their mortgages early.
Underwear modeling, sounds interesting…..
HT, what is the “r2k” that you are refering to? Also, what would you consider the best Option Trading book (for someone who is relatively new and trades basic put/call options, no leaps, straddles, etc.)?
TIA
Options as a Strategic Investment
by McMillan
the Bible of options
JD
R2K is russell 2000 small cap index, also represented by many ETFs [exchange traded funds] like IWM [which you can also buy options on].
I think Cohen’s ‘Options made easy’ is a good intro–