Pop! Back Into the Trading Range
By Barry Ritholtz - September 1st, 2010, 12:14PM
I have recently been complaining about the excessive bearish sentiment.
Whether it was Tony Robbin’s economic warnings, the excessive bearishness of Wall Street Analysts, or the the recession porn of the Hindenberg Omen, there has simply been too much negativity. Even the pushback on Leveraged Inverse ETFs had an air of excess and arrogance, that often precedes a reversal.
We are seeing that reversal today. The 250 point pop in the Dow is in large part due to the aforementioned sentiment excesses.
That’s the good news. The bad news is this move only puts us back into the prior trading range of 1040-1115 on the S&P.
And, it makes that 1040 level even more important. (Woe to the SPX if and 1040 breaks).
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September 1st, 2010 at 12:22 pm
“Woe to the SPX if and 1040 breaks.”
Got any travel plans coming up, BR? My HOT and M shorts are eyeing “green shoots” in the economy again…
September 1st, 2010 at 12:46 pm
that trading range goes back a year at this point if you ignore that little may outlier bump….
September 1st, 2010 at 12:49 pm
Fuld is on the offensive today – ‘there is nothing – nothing – that would indicate this was a bankrupt company”.
crazy talk – drinking his own koolaid so long he’s turning red and getting ready to jump through walls…
September 1st, 2010 at 1:00 pm
You make me laugh. You see a chart that reflects a stock market and confuse it with the stock market that existed as recently as a couple of years ago. You probably really believe it’s still a real market.
I see a lie that used to be a stock market. It’s run by crooks and their enablers. A lot of other people share this view and none wear tin foil hats. Life is getting weird. Big lies are becoming institutionalized and a normal part of everyday life.
The odd part of it all is that lots lots more people would make lots more money if the markets were run honestly. Everyone would be better off in uncountable ways. Instead, it’s become improper to even notice the markets are not an honest game any more, let alone talk about it on TV except in comic relief segments on business news. Why do so many heads stay in the sand and why are the rest so timid about noticing the obvious?
September 1st, 2010 at 1:02 pm
I’m too busy crying to comment. Farewell trading profit I barely knew you.
September 1st, 2010 at 1:07 pm
“Arequipa01 Says:
August 25th, 2010 at 3:20 pm
Is today the right time to go long (until the third week of November)?
@Gator81, thank you for your thoughts etc on those items.”
Yes. And if it might offer some advice, avoid talking to yourself. It’s creepy.
September 1st, 2010 at 1:11 pm
Barry,
I cannot agree more with your assessment on the significance of SPX 1040. Obviously each time that level was revisited this past week, buyers stepped in. I recall that in one of your recent postings, you mentioned that you had an SPX 950 target. Has your view on SPX changed since Friday’s and today’s strong rallies? It looks like Doug Kass may be right after all for calling July’s low as low of the year.
An interesting trivia: SPX 1040 turns out to be Fibonacci 61.8% retracement line if we look at July 2009 and January 2010 timeframe or SPX 870 – 1150 as the trading range.
September 1st, 2010 at 1:12 pm
Yesterday I heard some geniuses on da Bloomie pontificating about how the retail investor has gotten it right by piling into US treasuries…confirmation signal after all the buy signals last week.
So I rolled up my sleeves, grew a goatee, gave myself a tonsure haircut, called my broker and said “abye, abye, abaayyyyy baaby!”
September 1st, 2010 at 1:20 pm
BR: Complaining isn’t in the list of investment criteria. Buy or Sell. Which is it?
September 1st, 2010 at 1:26 pm
And I have thought your statement about “excessive bearish sentiment” was about the somewhat longer term economic outlock not just on the stock market, but also on the economy by the ones to whom you attribute this sentiment, and not just about some market bounce back from technically oversold conditions in a week’s time frame. Have I been mistaken? If I haven’t been mistaken how is such a technical bounce in the course of the gyrations of the stock market from one day to another supposed to be a valid falsification of such views and a valid confirmation of your dismissal of such views?
~~~
BR: We are in a secular bear market that I do not expect to end until sometime in the middle of this decade (plus/minus a few months). That is the long term view.
We were 80% cash, we are now 56% cash, so we are still MOSTLY cash — hardly a ringing endorsement or a new era. This is merely a Summer bounce, and when they come along, we want to play
September 1st, 2010 at 1:53 pm
Dead Hobo, right on man! Now please help me think where can they blow the next bubble?
September 1st, 2010 at 2:10 pm
“I see a lie that used to be a stock market.”
Yes, however, they will still ramp it to Nov. The Hindenburg will not be docking in Lakehurst. On the other hand, there will be cause to cry out “Oh, the Humidity” cuz somebirdy is going to get burned.
“lots lots more people would make lots more money”- one question, are you on drugs? It is not enough to be rich, everyone else must be sharecropper poor- pheasant is more delectable when wrenched from a peasant! Paisano…
September 1st, 2010 at 2:13 pm
The big rise seems reasonable. Politicians need to get reelected and the Financial Services Industry needs to keep from becoming irrelevant. Unfortunately for them they fail to recognize what’s going on out here in Real World Ville are seismic changes in trust in both institutions and demographic changes. Being a “baby boomer”, I won’t entrust either of them with my future.
September 1st, 2010 at 2:13 pm
Amen, dead hobo. Amen indeed. Welcome to the club, bro!
September 1st, 2010 at 2:15 pm
The quote is by Gore Vidal: “It is not enough to succeed. Others must fail.”
September 1st, 2010 at 2:17 pm
I’m very surprised that no one seems to be talking about the inverse Head and Shoulders pattern that is forming:
http://efficientish.blogspot.com/2010/09/inverse-head-and-shoulders-update.html
September 1st, 2010 at 2:27 pm
Excessive bearish sentiment? Does anyone still remember the “Greenspan put?” Well, it has been replaced by Brian Sack’s (http://www.newyorkfed.org/aboutthefed/orgchart/sack.html) trillion dollar-deep Fed’s pocket and 400 fearless FRBNY chart-watchers/traders who, like the 300 Spartans will defend the next technical support level until death (e.g. until the printing press runs out of ink or paper.)
So, once FRBNY made clear their intention to defend 1040 at all cost, every chartist, every algo, every quant, and every fast monkey trader start the buying binge, and rightfully so, ’cause there downside is capped by FRBNY!
September 1st, 2010 at 2:41 pm
Lost in all the hoopla today is the fact that gold made a new all-time high in Canadian dollars yesterday and again earlier today, and almost made a new all-time high in US dollars earlier today. GLD is now 1% from its all-time high.
Good luck with your trading range trading…
September 1st, 2010 at 2:49 pm
Gore Vidal!?! I thought I was cribbing from Vidal Sassoon…criminy.
Ole VS- a true renaissance man- shampoo and poetry ; p
“Nimrod in September
When half the drowsy world’s a-bed
And misty morning rises red,
With jollity of horn and lusty cheer,
Young Nimrod urges on his dwindling rout;
Along the yellowing coverts we can hear
His horse’s hoofs thud hither and about:
In mulberry coat he rides and makes
Huge clamour in the sultry brakes.”
September 1st, 2010 at 3:00 pm
“The odd part of it all is that lots lots more people would make lots more money if the markets were run honestly.”
Since the markets are a zero sum game, the obvious must be stated; they are rigged by those who gain the most from the rigging.
You are correct in thinking that most have not caught on to the rigged game, but the criminals don’t even bother to hide or be embarrassed anymore by the outright thievery. No one gets prosecuted, the laws that are passed are toothless or unenforced. And so it goes.
September 1st, 2010 at 3:25 pm
Has anyone looked at volume today? Pitiful. As it has been on every rally since the late April peak.
This is the (in)action of sellers, not buyers.
And as all of this is driven by today’s ISM, do note that the relationship of new orders to inventories is going the wrong way.
September 1st, 2010 at 3:44 pm
@ Barry,
“We are seeing that reversal today. (…) That’s the good news.”
I can’t see how a 3% increase in S&P in this situation can be seen as good.
You yourself claim to be ~ 80% cash and waiting for S&P 950, so this increase is not benefitting you (unless you want to go short from higher levels).
As for everyone else – seasoned investors are aware of the likely course of action that played time and time again throughout the history – main markets ending somewhere between 6 – 9 on P/E scale, 1-2 Dow-to-Gold, below 0.4 on Tobin’s Q ratio etc. So, an increase like today is only increasing volatility, prolonging the bear market, prolonging agony of this inefficient financial/economic/political system and makes future generations to pay for the sins of their forefathers.
I want this nightmare to end as soon as soon as possible. I can’t see how paying for sins of the previous generation is supposedly “good”.
Maciek.
September 1st, 2010 at 3:56 pm
August started off with a big day too. So what. Anyway, I don’t understand the significance of the first day for funds which I’m assuming has to do with these first day of the month pops we have been getting more often then not. Are some funds obligated to buy?
September 1st, 2010 at 4:02 pm
Barry,
Thank you for the clarification.
September 1st, 2010 at 4:05 pm
Now that the recent negativism is exposed as a fallacy (Hindenburg, double dip, etc), what is the future direction of markets?
We will probably see a move up in September, followed by a seasonal dip in October, probably followed by a rise in November after the elections. Funds will polish their holdings in December; added to tax selling, and we could have perturbation at year’s end.
We probably won’t know the real market direction until after January.
September 1st, 2010 at 4:14 pm
OK, done crying now. Solace in the echo chambers of blog negativity have refreshed perspective.
1) This ISM data is not that good.
2) The descending triangle is broken, and the chart could be rangebound 1020 to 1120, but it could also be wedging in to 1100 for a decision on next month’s data.
3) Next months MBA purchase index and lagging CS index will better reflect the post-subsidy housing market.
4) If the regional and national numbers split the difference in implied error, and orders numbers are real, next months ISM will go back the other way.
If this was a shock and awe move, it should die back down by Friday. If the Friday jobs number restokes the launch, then gold seems like a good place to hide until the next short attempt (anywhere over 1100).
September 1st, 2010 at 4:36 pm
“The market’s rigged! Waah!”
Face it, little guys are not going to beat the big guys in the short-term game. The bigs can trade faster, get the news sooner, and have the weight to move the market. In the short-term game, the bigs are always 2 touchdowns ahead and it’s the fourth quarter. It’s just dumb to play their game and complain when you lose.
To win, you play the low frequency game, the long-term game. Be an investor not a trader. Wall street doesn’t have an attention span beyond the next six months. Research well, make the trade, and fuggedabouddit for a year or two.
The only time to be a trader is during a crash. You can make good money when the bigs are losing their shirts and their minds. When the bigs are FORCED to unwind, you can clean up.
September 1st, 2010 at 4:56 pm
@Marcus:
In what way has the “recent negativism”, like the expectation of a “double dip” been exposed as fallacy? Please could you elaborate?
Based on hard data and statistics, it’s highly likely that another recession (or the continuation of the old one, after the effect, called “recovery” of unprecedented government stimulus has been fading) is imminent. I haven’t seen any hard data yet from the ones who dismiss the imminent recession, though.
September 1st, 2010 at 5:37 pm
Two things, 1) @dss – The equity market isn’t a zero sum game. Thinking that’s the case is a basic misunderstanding of it. 2) People have always talked about the market being rigged. I’m constantly amazed, what do you expect it to do. You’re bearish and you think it should be 700 so it should go these tonight and stay there in perpetuity until things are better? If you don’t like the market sell it. Simple as, don’t rock around forums bitching about it.
September 1st, 2010 at 6:05 pm
I’ve been mostly in cash in Treasuries the entire year. Many others have made money as well this year. Does that mean I or others can’t complain about what is clearly a farce of a market? Answer: No. So please STFU.
September 1st, 2010 at 8:47 pm
Awfully sensitive for a guy who claims to have made money this year! I am 65% bonds, 15% equities, 20% dry powder, but I am starting to short long treasuries and TLT when it goes over 107.
I have been an investor for 25 years. Today’s market doesn’t seem any more rigged than in the past, just rigged in a different way. Your mileage may differ.
September 1st, 2010 at 9:03 pm
@Broken: No, just irritated in general at the overall state of affairs. And I freely admit that I got smacked a bit in ’09.
September 1st, 2010 at 9:06 pm
I bought chunks of TLT from low to mid-90′s all the way down to its lows. Have dumped about half of it around 107/108. Hanging onto the other half for now.
I’m about 50% bonds, 35% cash and 15% equities at the moment.
September 1st, 2010 at 9:13 pm
I think Paul Craig Roberts over at Counterpunch has nailed it. Neither side in the debate has got it at all right. As to whether the market is more rigged than in the past, when has any market seen the levels of support given this one? Hundreds of billions of dollars of “support” and “bailout” , nationalization of what amounted in the late 80s to a significant portion of GNP, and this is what we have to show for it. Thanks, but no thanks. Someone wants to play this in the short term according to charts and all, fine. That’s for the pros and the players-and the market was vastly oversold to the non pro public and sucker public pension funds as a reliable investment vehicle. There will be more hell to pay in the years to come if it doesn’t right itself. And where is the necessary growth for that going to come from? Anyone? Bueller?
September 1st, 2010 at 9:28 pm
Meanwhile: the list of problem banks climbs to 829
http://cryptogon.com/?p=17403
September 1st, 2010 at 9:31 pm
BR:
I think you are putting too much emphasis on being a contrarian in this situation and it’s causing you to see bearish sentiment where none exists. I read the “pushback” from the Inverse ETF post that you reference and I just don’t see the air of excess and arrogance that you are talking about. Except for one commenter, everyone agrees with the post.
I’m starting to get a little worried.
September 1st, 2010 at 10:50 pm
Arequipa01
We lived in Egypt and my friend live in Malaysia, so I know what you mean. My friend would walk through the shopping district of Johor Baru and the merchants who knew him would yell “money”. He was making $100k tax free and his water bill was $1/month. He’d take 17 people to a five star restaurant for dinner every week: as crazy Eddie would say-the prices were insane. My friend had long hair and one of his conservative Malaysian Chinese guests objected. He didn’t invite him the next week. The guest quickly apologized a few days later.
September 2nd, 2010 at 3:47 am
@ Maciek
I feel absolutely the same way. But I am afraid this will all turn Japanese, so the end will be far away with a lot of vola and little altitude change. Only HFT works in this environment really…
September 2nd, 2010 at 3:59 am
I still think the sentiment focus is overblown and, to a large degree, a red herring that is more noise than substance.
Consider that volume in August was extremely light, 2010 has been plagued by “rangebound reversals” the entire year, and furthermore that the extreme uncertainty at this juncture is entirely in keeping with a deeply cloudy economic outlook.
On the one hand, a double dip looks imminent. On the other hand, ZIRP is deeply accomodative to asset prices and true double dips are rare. On the one hand, the China growth story could implode. On the other hand, “a rolling loan gathers no loss.”
August was the worst month for equities in nearly a decade, according to the Telegraph. The economic data suggested that the US economy had “hit a wall.”
Then, surprise! The manufacturing data for both the US and China comes out above the top of the range. Wait! Maybe we’re not double dipping after all!
If we hadn’t seen surprisingly positive manufacturing numbers, the whole market complex could have fallen off a cliff. It was the jolt back to surprise optimism in the data, in a light market in which fewer and fewer players are participating, that gave such a strong push.
From a larger picture perspective, this kind of back-and-forth action is entirely consistent with a deteriorating macroeconomic environment in which things are getting steadily worse, with the secular drivers readily apparent, but one in which occasional blips in the data can easily set off low participation hope jags.
Given this reality, my beef with saying “yeah, sentiment was overdone on the downside” is that the manufacturing numbers pretty clearly seemed to be the pop catalyst here. What would have happened if the US and China PMI had come in ugly? Maybe more slow slide… maybe a full on meltdown hard to say.
None of this should really matter I suppose, except as an active and aggressive market participant (primarily a swing trader) it chafes me a little when signal is (in my opinion) confused with noise. To trade markets in volatile times like these one has to have a methodology that expects and anticipates crazy one-off reversals from time to time, with a focus on robust thematic drivers rather than getting put off the scent by efforts to be overly precise in gaming sentiment this or sentiment that.
Sometimes the data will just throw a curveball, and that curveball can have an outsized effect when the trading is light and nervous. Just my rambling .02.
September 2nd, 2010 at 8:32 am
The daily flow of pessimism and optimism swirls… but in the longer term it is likely that we will enter a period of rising interest rates and declining bond prices – maybe a 20 year period. We could stay stagnant like Japan, but the demographics and immigration policies of the US, among other things, is different. The developing countries have seen the future and won’t let go, and the US is more likely than Japan to find ways to participate and benefit.
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