Andrew Lees of UBS writes:

Yesterday’s equity rally was fascinating; not because of the excitement it has caused but because of the sheer lack of interest and belief. Having spoken to half a dozen people this morning about it, without exception no one either bothered to try and explain it or thought anything of it, and certainly no one even remotely suggested that it may be the start of something bigger. This is very understandable; business risk has removed any interest in the business of making money.

Whilst people talk of “revulsion” at market  lows, this complete lack of interest and dismissal of yesterday’s move or the potential for any reason for anyone to commit capital, is exactly the same thing. What is more, we don’t need a huge amount of capital to lift this; rather we need a reduction in the selling pressure. We are set up in a similar way to some of the big 2002 rallies whereby there are a large number of deep in-the-money puts out there. As these approach expiry, unless they are converted to physical sales rather than cash sales, then there will be a lot of buying needed to happen.

This would not be an expiry effect only lasting a day or two before expiry, but would be like 2002, a monthly kind of move. It is also worth remembering that in 1974 10 day volatility exploded when the market rallied from its lows as the S&P jumped 17% in just one week – (the Shanghai Composite is now up 16% from last weeks low, and there is speculation of a rate cut at the weekend according to Bloomberg). One other aspect on business risk is that if we do have a sizeable bounce from here, then hedge fund business risk may change to that of underperforming mutual funds etc.

Category: BP Cafe, Markets, Options, Psychology

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.

11 Responses to “Revulsion or Lack of Interest?”

  1. Steve Barry says:

    Personally, I’m long through listening to the likes of a UBS analyst or any Wall street type.

    My update is as follows…feel free to use my bookmarks:

    1) Short interest in QQQQ and all major names is stunningly low, making a squeeze impossible…only longs will be squeezed.

    Nasdaq Short Interest

    2) 10 day MA on put/call nowhere near oversold.$CPC&p=D&yr=1&mn=0&dy=0&id=p11854858723

    3) Small and large speculators are long S&P futures

    4) Bloggers at all-time high bullishness

    5) My target for S&P bottom is .7 times slaes or less…and sales are now dropping bigtime. MINIMUM downside is to S&P 700…Comstock Funds agrees

  2. KJ Foehr says:

    @Steve Barry
    My personal benchmark for the bottom is PE = 7 or thereabout. But I don’t think we are going there in a straight line, so the question is, how long will it take to get there and how high will we rally before then?

    In my amateurish, simplistic view, a 10% intraday rally does not occur in a period of true revulsion. We may be nearing the beginning of this period, but I expect it to last months, not just days or weeks, and I expect the revulsion to increase over time such that the kind of excitement and panic buying we saw yesterday becomes inconceivable – that is true revulsion and, IMO, we have not seen it since 1974.

  3. DP says:

    @Steve Barry :

    Regarding point #4. Look back to before October 13th – in July and August they were mostly bullish. In September and before the crash, they turned very bearish.

    What if, no reverse psychology or contrary plays, they were simply right? What does that say today?

    Too much information. Everything moving too fast. I don’t even remember at this point what specific event triggered the massive first sell-off early October (was there even one?)

  4. Steve Barry says:


    If you look at that poll, every time bearishness spiked above bullishness (March 07, March 08, June 08 and Sept. 08), the market rallied strongly within a few weeks. Well, a few weeks ago bearishness hit ZERO. While of course nothing is certain, this is one more data point that tells me we have not had a capitulation low yet.

  5. ericholtman says:

    “We are set up in a similar way to some of the big 2002 rallies whereby there are a large number of deep in-the-money puts out there. As these approach expiry, unless they are converted to physical sales rather than cash sales, then there will be a lot of buying needed to happen.”

    Can someone explain this?

    If person A has a position P in deep-in-the-money puts, and has to execute strategy X upon expiration, isn’t there always a person B with position -P who has to execute strategy -X?

  6. DP says:

    “Buyers market with no buyers”

    Not sure if I agree with everything in this, but an interesting read:

  7. leftback says:

    Hey DP: are you a Swiss resident of NYC? Welcome to the TBP community, you will find a host of interesting traders and commentators here. Look forward to another beer. Regards, leftback.

  8. leftback says:

    BTW, DP, not so fast on the corpys and munis. There are more defalts in our future than any of us has ever seen. It’s not that the deals on bonds aren’t good, it’s that rates are going to rise further than most people believe. Think about the spreads we have now and then think about Treasuries selling off as inflation is rekindled, and what do you have? Monster yields on lower-rated paper, but also losses on bond funds purchased now. I do think it is worth keeping an eye on TIPS though…

  9. Mike C says:



    Not sure this is useful as a contrary indicator

    “In summary, analysis of Ticker Sense Blogger Sentiment Poll results indicates that aggregate blogger sentiment is non-predictive for future stock market direction.”

  10. harold hecuba says:

    as richard bernstein points out one of the best contrarian indicators is the wall street asset allocation model (for the life of me i still can’t believe people adhere to that nonsense. wall street is nothing but a sales amachine) generally when this model has a weighting of 60-65% stocks it is a good bet that stocks will have very poor returns over the next few years. an under 50 weighting would be an indicator that equities may offer a decent return. right now the model is 58% which is no where close to atttrative.

  11. whosonfirst says:

    I’m probably less knowledgable about markets than anyone posting here. But in the current environment that may be an advantage rather than a handicap. So, here’s my two cents: the macroeconomic picture is bad and much more likely to deteriorate rather than improve. I suspect there are a lot of sophomores (mostly young) in the market who don’t realize or respect this simple overtrumping fact.

    I think the ongoing volatility and sometimes irrationality will continue until most middle class people say “To hell with the market”. From that point forward the market will languish in a range for a long time.