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Bad Bears or Road to Recovery?

Posted By Barry Ritholtz On August 22, 2009 @ 8:50 am In Contrary Indicators,Markets,Technical Analysis,Weblogs | Comments Disabled

Congrats to Doug Short for being cited in today’ Barron’s [1]. Mike Santoli mentions his 4 Bad Bears Market [2] as an contrary indicator of trader sentiment.

He writes:

“Perhaps the time to become seriously concerned won’t arrive until professional traders and snack-table laptop investors quit passing around this latest version of the “Four Bad Bear Markets” chart (http://dshort.com/charts/bears/road-to-recovery-large.gif) [3] so energetically.

It shows this rally to have about equaled the duration and magnitude of the doomed rebound off the 1929 lows, and to have outpaced the other post-bear recoveries of the past century. It argues, perhaps, for a true retrenchment or stall soon.”

There is a small URL error that needs to be addressed; this mistake suggests the basic premise of Mike’s argument is incorrect.

Unfortunately, the crack tech staff at Barron’s linked not to 4 Bad Bears Market [2] but instead, pointed to the more recent D-Short chart, titled,”The Road to Recovery [3].” This chart looks not at the possible amount markets can fall, but rather, how much further the rally can run. It compares 3 prior bottoms with the current one. (Charts below)

From a contrary perspective, it argues for the exact opposite conclusion than the Four Bad Bears chart that I suspect Mike was referencing. Freudian slip or simple URL error, it shows the challenge of relying on blog posting for contrary sentiment.  You have to keep up not only with what is posted, but what is au courant at the moment. As we all know, that changes second to second.

I wonder: Does this change Mike’s view of the contrary factors?

UPDATE: August 22, 2009 11:58am

Mike Santoli replies:

I shouldve been clearer in my reference to the Short chart. I did intend to link to the recovery chart, so there isn’t a URL error. And it doesn’t change my thought on this chart’s popularity. Seems to me it’s being sent around mostly by folks who want to show that this rally at this stage is way ahead of all other “real” market recoveries and is most like ’29-30, thus we can’t plausibly expect it to deliver more upside soon and the market probably needs to correct hard.

I don’t view this as any raging contra signal, just another indication that sentiment remains more cautious than one might expect after a 50% ramp.

Thanks-
Mjs

>

Is this a contrary indicator?

four-bears-large [4]

>

Or is this newer chart the one that we should be focusing on ?

road-to-recovery-large [5]

>

Source:
Gummy Bears [1]
MICHAEL SANTOLI
Barron’s AUGUST 24, 2009

http://online.barrons.com/article/SB125089395111750479.html


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2009/08/bad-bears-or-road-to-recovery/

URLs in this post:

[1] Barron’s: http://online.barrons.com/article/SB125089395111750479.html

[2] 4 Bad Bears Market: http://dshort.com/charts/bears/four-bears-large.gif

[3] http://dshort.com/charts/bears/road-to-recovery-large.gif): http://dshort.com/charts/bears/road-to-recovery-large.gif

[4] Image: http://www.ritholtz.com/blog/wp-content/uploads/2009/08/four-bears-large.gif

[5] Image: http://www.ritholtz.com/blog/wp-content/uploads/2009/08/road-to-recovery-large.gif

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