Posts filed under “Contrary Indicators”

Rug to be pulled out from under the short bonds trade ?

In certain aggressive managed accounts, we have been nibbling on some TBT, the inverse 20 year treasury ETF. Data such as the AAII Asset Allocation Survey show investors are very overweight bonds relative to their 27 year mean.  Additionally, the multi-decade drop in interest rates suggests we are likely at a secular low, and ready to embark on a long cycle of rising rates.

Looking at TBT, we see a technical base building, which looks so inviting. As they say in our industry, it looks so good it makes you “want to back up the truck !”  On paper it’s a perfect set up: a long death decline, from $ 300 in 2008 to a low of $56.32 on July 25th 2012, exhausts and frustrates even the most ardent TBT holder into capitulation.  With most of the owners flushed out of TBT, or at minimum uninterested after being “long and wrong”  for so long, shares subsequently have built a beautiful 7 month base. Throw in all the rational and widely assumed fundamental reasons why Treasuries should correct, and instruments like TBT should rock and roll.

So after stating all the aforementioned points, you’ll be surprised that we are rethinking our small long commitment in TBT.  Why ?

1.   It’s too obvious to everyone: The old saying the “market exists to confound the majority and reward the minority” exists for a reason.  Typically, when everyone thinks they have it figured out and it seems so easy and logical – it just doesn’t work.  Markets don’t just shower riches on the masses.  It’s just never that easy.  Markets reward intelligent and diligent thinkers and tacticians.  Right now EVERYONE thinks bods will top – so we suggest the maybe the market won’t be so accommodating !

2.   Setting up to breakout – and breaking out – are two different things:  While that TBT base looks very enticing, we have seen many promising bases fail at the upper end of their range, then slip and fall back into the base again.  We all have selective memories of these great breakouts, the kind that bust out and never look back. The reality, however, is those type of breakouts are the minority.  The $ 69.25 – $ 70.00 level on TBT has been a sticking point for a while now.  We will call it a breakout when those levels are eclipsed.  For now, its all potential … and “potential” has gotten many an NFL executive to bite on first round QB’s that can’t cut it !

3.   Monster spike in Google Trends for TBT: While not scientific, we find the chart below from Google Trends very interesting from a sentiment perspective.  As illustrated below, the amount of interest in TBT, as demonstrated by Google searches for TBT, have exploded to an 8 year high as of yesterday.  This clearly supports our 1st point: everyone is sniffing around this trade, and we just don’t see the market rewarding everyone, as she’s just not that kind !

google trends

Click chart to see larger image

So while the TBT chart below shows a potentially compelling technical bottom, and fundamental evidence to support the trade is plentiful, TBT has been repelled at resistance again, and slipped lower as bond yields moderated.  While we believe ultimately this is the correct trade to make, the timing just may be off, however, as too many people are sniffing the trade.  Thus, shares may skip or base for several months longer to get investors uninterested again.

This trade will remain on our radar as we are setting alerts in our FusionIQ software system to alert us to TBT > $ 70.00, coupled with a new FusionIQ Buy signal.

Ultrashort 20 Year Treasury (TBT) – Daily Chart

As seen below TBT shares are still below key resistance near $ 70.00 (red line).  Only above $ 70.00 will TBT truly have broken out and turned the corner. Until then, the seduction of the breakout will be the lure.


Click Chart To See Larger Image



Category: Contrary Indicators, Fixed Income/Interest Rates, Think Tank

How Cheap Are Equities ?

Source: Société Générale



To answer that question, look at the chart above, courtesy of Société Générale’s Albert Edwards, who asks the question “Are equities really “unambiguously cheap”?“. (Cyclical Earnings charts after the jump).

Shiller’s CAPE chart shows that while US equities are fairly reasonably priced, they are not, to use Edwards term, ““unambiguously cheap”.” But for about a week in March of 2009, they were, but if you blinked you may have missed it.

Europe, on the other hand, appears to be appreciably cheaper than US equities. (Funny how recessions tend to do that). We have about a 16% European weighting, primarily through ETFs like GAL and DVYE.

Regardless, contrarians may wish to take note of this from a valuation perspective.



Are equities really “unambiguously cheap”?
Albert Edwards, Global Strategy Weekly
Société Générale, February 14, 2013


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Category: Contrary Indicators, Earnings, Investing, Valuation

Economists: Don’t Buy Bonds (so you should buy bonds)

click for larger table Source: Bianco Research   Fancy yourself a contrarian? The crowd hates bonds. How about you . . .  ?   ~~~~   UPDATE February 6, 2013 8:11pm I am not suggesting backing up the truck with 10 years, I was trying to make a snarky point about crowd opinion.  I guess…Read More

Category: Contrary Indicators, Fixed Income/Interest Rates

Wall St. Feeling Better but Far from Bullish

  I have shown this graphic repeatedly in the past, but given today’s rally, we might as well trot it out one more time: The Sell Side Indicator — Merrill’s measure of Wall Street’s bullishness on stocks — rose by 2.8pt in January to 49.8. This is now an eight month high and the fifth…Read More

Category: Analysts, Contrary Indicators, Investing, Psychology

Uh-Oh: NYT’s Front Page Cover Indicator

“Americans seem to be falling in love with stocks again.”   That is the first sentence of a front page NYTimes article, titled As Worries Ebb, Small Investors Propel Markets. The rest of the article is just as bullish: “Millions of people all but abandoned the market after the 2008 financial crisis, but now individual…Read More

Category: Contrary Indicators, Investing, Psychology

S&P500 vs 3 Month Lows; 90% Up Days

Interesting data point from Jason Goephert, Sentiment Trader: There have been 9 other times the S&P 500 tracking fund, SPY, hit a three-month low, then the next day opened for trading at least +0.5% above the previous day’s high and closed at least +0.5% above the open.  7 of the 9 led to gains over…Read More

Category: Contrary Indicators, Markets, Technical Analysis

Are FINRA Arbitration Filings a Contrary Indicator?

Warning! Finra Arbitration Filings Down, S&P 500 Up     Jack Duval of Original forensic analysis + visualization points out the inverse correlation between FINRA arbitrations and market peaks: “[Above] is a visualization of annual Finra Arbitration Filings as compared to the S&P 500 annual closing value. Since 1999, there is a significant negative correlation…Read More

Category: Contrary Indicators, Legal

Ritholtz’s Rules of Investing (part I)

Each year on the Big Picture, the blog I call home, I update my top trading rules and aphorisms. It’s a collection I have gathered over the years of my favorite trader, analyst, economist and investor viewpoints on what — and what not — to do when it comes to investing in the capital markets….Read More

Category: Apprenticed Investor, Contrary Indicators, Psychology

Fidelity’s Bond Funds Now Larger Than Equity Offerings

Way back in the Summer of 2003, I wrote a report that analyzed the Contrary Indicators 2000 – 2003 Bear market. It consisted of both internal and external signals that strongly suggested that the 2000 crash was over, and it was safe to get back into equities. The second of the external signals was that…Read More

Category: Contrary Indicators, Investing, Psychology

The Chart That Keeps Us Up At Night

The only major global equity index which we monitor — and it is a big one – that is down for the year is the Shanghai Composite.   The chart looks ugly and ready to break to new lows after its post crash peak of 3,477, way back in August 2009. The Shanghai is down 39.2…Read More

Category: Contrary Indicators, Markets