Seeking Alpha

Mission Accomplished: Time to Sell 27 comments

by: Tsachy Mishal May 10, 2009 | about: IYR / SKF / SPY    
About this author:

When the initial burst off the bottom in 2003 occurred, there was a large sentiment shift, similar to what we are seeing today. At the time, the US invaded Iraq and with each military victory the market shot higher. This time around we have the stress tests, which are proving to be an even easier challenge than Saddam Hussein was. It seems that everyone remembers 2003 and believe they know what happens next.

While the current period bears some similarities to 2003, the differences are far more prominent. In 2003 companies were announcing large buybacks and we were at the nascent stages of an LBO boom. Currently, companies and insiders are selling stock into the market at a pace never seen before. Back then we were at the early stages of a real estate and credit bubble. Every day new methods were being invented on how to turn one's house into an ATM. Today we have massive over capacity in real estate and consumers are deleveraging. Back then corporate taxes were being lowered, while Barack Obama is planning on closing tax loopholes that will likely result in a 4% reduction in corporate earnings.

The rate of decline has slowed, but there is little evidence of an expansion. What sectors are expanding and will lead us? The truth is that the market's rise is convincing investors of a recovery. It is not considered intellectual to say that one is bullish because the market is going up. As a result, intellectual sounding stories are concocted to make joining the herd seem like a logical decision.

Bearishness reached an extreme that I have never seen two months ago. The recent rally was an unwinding of that extreme sentiment and in my opinion has run its course. The easy money trade has gone from shorting anything with leverage to buying anything with leverage. My experience with easy money trades, is that one should run in the opposite direction.

Tops are harder to call than bottoms as extreme positive sentiment can last for a while. In contrast, extreme negative sentiment typically reverses pretty quickly. However, I believe that the high level of secondary offerings that is expected to persist will make staying at these lofty levels harder than usual. Additionally, gains are much harder to come by once sentiment has reached an extreme. Even people who believe that this is a bear market rally, believe it is too dangerous to fight it.

I am very encouraged by that, as it is the type of sentiment seen at market tops. The time to buy was two months ago, the time to sell is now.

Disclosure: Short SPY Calls, Short IYR[[ Calls, Long SKF

Related Articles
Print this article with comments

This article has 27 comments:

  •  
    Good commentary and word to the wise.
    May 10 10:52 AM | Link | Reply
  •  
    On April 20 you published that it was time to sell and that your disclosure that day was short spy.That is about 50 spx points below where we are today.Eventually we will get a retracement,but when and how much no one knows.Wait for the market to show its hand seems the prudent play.
    May 10 11:09 AM | Link | Reply
  •  
    Only God knows. Us peons make our decisions with both courage and trepidation.
    May 10 11:18 AM | Link | Reply
  •  
    Calling tops and bottoms are equally difficult and usually a waste of time and energy, especially based on just sentiment. It all depends on what time frame you trade. We are witnessing a magnificent bear market rally IMO. The short term trend it obviously up. the intermediate term is up/neutral and the long term trend is down. Not unusual to see large moves retraced up to 50% which would put the DOW a shade north of 10,000. Do we see that? NOBODY knows what happens next. Trade what you see, not what you think.
    May 10 11:29 AM | Link | Reply
  •  
    ...your blog indicates you sold naked SPY May 87 calls on April 21 with SPY at 85...and now SPY is at 93...hoooeeee, I understand why you think it's time to sell!...man, more than your back's going to be hurting in a couple of weeks if the market doesn't fall!
    May 10 11:37 AM | Link | Reply
  •  
    How about my article on March 9, Close To the End Of The Selling Cycle or March 22 Bear Market Rally Not Over Yet. I was very bullish 2 months ago and took heat for it.

    What about the people who were bearish 40% lower and are now bullish? No one has a problem with those people? If you followed my blog the day after I wrote the article Six Reasons To Sell This Rally the market was down 5% and I covered my short.
    May 10 11:46 AM | Link | Reply
  •  
    "My experience ... I believe..."
    I don't want to sound age-ist, but some of the authors on this site look barely out of puberty. What 'investing experience' does a 26yo have, honestly?

    I have little confidence in youth pretending to be wise. Particularly if your track record suggests otherwise! A less arrogant, self-important tone suits those who actually haven't ANY previous professional experience in Bear Mkts and Rallies.

    Just my two cents.
    May 10 12:01 PM | Link | Reply
  •  
    Well, ya'know.. I am making $ long right now after getting it wrong twice in the past. Maybe it's your turn to get it wrong. Besides, it looks like you are ignoring fundamentals, going against the trend.. which is up! Bettin against the market is OK if your pockets are deep.
    May 10 12:14 PM | Link | Reply
  •  
    Good article, well written and well argued. I don't expect new lows, but I am hedged and inclined to believe your bearish trading bets are more likely than not to be rewarded.
    May 10 12:26 PM | Link | Reply
  •  
    Tracking sentiment is always useful as an indicator. Good article. If you think this way, and you are in an average demographic, then maybe more people like you will think like you, and your prophecies will be self-fulfilling. After all, the market is not currently up based on fundamentals. It's up because of the quants.
    May 10 12:45 PM | Link | Reply
  •  
    Your March 9 article was indeed a good call so "hats off to you ".Having reread your blog posts from April 20 to today,it seems to me that you were short more so than long so definetly you missed the 875 upwards breakout to 930.You,as well as many others,will be correct about an eventual pullback one day,possibly starting tomorrow,or tuesday or whenever the market rolls over.But one should only be agressively short when a turn occurs.Like many others,you are talking your "book" and have an obvious bias.

    Mr.Vincent's post ,considering he states he is 100% cash is unbiased and an excellent read.

    Everyone and their brother is hoping for a pullback so they can get in "at a discount".So dips will be agressively bought imho and the downside appears at max. the 875 region and then upwards and onwards from there.So why would one bet on a eventual posssible 5% downside when upside potential is much greater.Risk/reward favours being net long;short term a pullback is certain but at what point..950/975/1000??.... that,onward and upwards looks to be in the cards.
    May 10 12:54 PM | Link | Reply
  •  
    I bought some ulttra short the same day and made a good 10% on that trade myself. I am looking to short again soon as a major position. emerging markets look the most ripe to me for a fall. Also if markets do not move down shortly dollar will collapse too fast. this should cause the fed to tell goldman to take a chill pill. goldman forecast oil at 60 by year end. I figure they may be sending out clues at to when one should short for those who are listening. but I do not know. two days ago had a short dug open in the am close at end of day. that was 8%. at the level we are now careful timing will cause one to hit. one must be very careful, but if done with care it isn't too hard to make a big trade. because of the clear manipulation in the market I haven''t held onto the trades, but have set buy stops a bit below that low . i.e. dug will be picked up when the high of two days ago is broken, and it it gaps upward at the open I will buy again. As before, emerging is the likely money making short.


    On May 10 11:46 AM Tsachy Mishal wrote:

    > How about my article on March 9, Close To the End Of The Selling
    > Cycle or March 22 Bear Market Rally Not Over Yet. I was very bullish
    > 2 months ago and took heat for it.
    >
    > What about the people who were bearish 40% lower and are now bullish?
    > No one has a problem with those people? If you followed my blog the
    > day after I wrote the article Six Reasons To Sell This Rally the
    > market was down 5% and I covered my short.
    May 10 01:00 PM | Link | Reply
  •  
    Homer II: The uptrend itself is what has been ignoring fundamentals.
    May 10 01:04 PM | Link | Reply
  •  
    the rally that started the same bull market distance in 2003 (300 points S&P took from early march till end december (approximately) 9 months we have it too fast . in truth, this looks more lie the second of three bounces from that period, the last being a higher bottom but then getting on to the real run.
    May 10 01:07 PM | Link | Reply
  •  
    In Oct-Nov'08, Nasdaq broke its long uptrend line drawn from 1978-to-date (becoming resistance afterwards) and just backed off from it - plus closed below its 200-day moving average. NDX has tested its 200-day moving average twice during the last couple of sessions and not sure if it could keep the support on the third attempt. It's hard to imagine overall market advance without the main leaders like Nasdaq and NDX. Techs have clearly lost steam after Cisco's earnings report, as they did in Oct'08 starting the big market landslide. I agree with the author that it's an oversold rally based on the optimism for a quick recovery, for which no evidence exists thus far. Based on all of the above, my conclusion is that we are very close to a top.
    May 10 01:08 PM | Link | Reply
  •  
    Tony
    NDX closed at 1394...200 m.a. is 1380....
    May 10 02:04 PM | Link | Reply
  •  

    Yes, you're old. Congratulations.

    Let's judge the author on his accuracy, not on his age.

    On May 10 12:01 PM Analyste de Boston wrote:

    > "My experience ... I believe..."
    > I don't want to sound age-ist, but some of the authors on this site
    > look barely out of puberty. What 'investing experience' does a
    > 26yo have, honestly?
    >
    > I have little confidence in youth pretending to be wise. Particularly
    > if your track record suggests otherwise! A less arrogant, self-important
    > tone suits those who actually haven't ANY previous professional experience
    > in Bear Mkts and Rallies.
    >
    > Just my two cents.
    May 10 02:29 PM | Link | Reply
  •  
    All of us have no clue as to what the future holds, but selling now could limit gains. As one who saw this all go down-hill much further than anticipated, I want to give my gains a chance to run. I can't time this market, and one has to wonder whether or not any one really can. Selling now would cut my gains, after letting my losses run, and for me, that is not a winning strategy. I reserve the right to change my mind after further gains, but for now, I am sitting tight. Of all the analysts thoughts, I like Ned Rileys the best, and Ned thinks we could well have a summer rally. I am going to stay invested long enough to see if that happens.
    May 10 03:15 PM | Link | Reply
  •  
    Ahh Cetin,

    How refreshing it has been to read Seeking Alpha for the last day without any new comments from you. But we knew it couldn't last.

    Anyway, how about if you hold on to all your long positions FOREVER and let us know how that worked for you AFTER that period of time has elapsed.

    Looking forward to your next 1800 inevitable comments, Ubu.
    May 10 05:51 PM | Link | Reply
  •  
    mikesa69,

    Oh, I don't doubt that this runup will not last. I am trying to make up some of the loss we each suffered over the last 9 months. As long as I keep tight stops, I think I'll come out to the good this time.
    May 10 10:04 PM | Link | Reply
  •  
    That would be the conservative Let’s say we spend our $2 trillion and get a couple of quarters of weak 2% type growth. Then once the effects of the stimulus wear off, we slip back into recession, setting up a classic “W” type recession. Unemployment never does stop climbing. This happened to Roosevelt in the thirties. So congress passes another $2 trillion reflationary budget. Everybody get’s wonderful new mass transit and alternative energy infrastructure. But with $4 trillion in spending packed into two years inflation really takes off. The bond market collapses, the dollar tanks big time, gold goes ballistic to $3,000, and silver to $50. Ben Bernanke’s replacement has no choice but to engineer an interest rate spike, taking the Fed funds rate up to a Volkeresque 20%. Housing, having never recovered, drops by half again. This all happens in the 2012 election year. Obama is burned in effigy, a Mormon is elected president, and the Republicans, reinvigorated by new leadership, retake both houses of congress. We invade Iran. Crude hits $200. This is not exactly a low probability scenario. Remember Jimmy Carter? This is why junk bond yields are still stubbornly high at 14.5%, and credit default swaps are at lofty levels. The risk of Armageddon is still out there. Just thought you’d like to know. Pass the Ambien.
    play.
    May 10 11:04 PM | Link | Reply
  •  
    I think you'd be wrong to encourage selling at this juncture. This rally is starting to do a sector rotation into the issues which haven't participated. Better to do some homework and pick some more winners. There are many. You will be ground down with any short plays right now.

    My $0.02
    May 11 01:11 AM | Link | Reply
  •  
    I sold all on Friday. Didn't want to wake up Monday and look at a big downdraft gnaw off a bunch of my gains. I'm not greedy.
    May 11 01:30 AM | Link | Reply
  •  
    Get off it! Cetin has been correct thus far so eat crow you nay sayers!!!
    My only disagreement with celtin is that he thinks this is the bottom of a V shaped rally and I think it is a bear market rally but it already has shown that it has legs and is worth a play-sorry if you have been short all this time but learn to use real or mental stops.


    On May 10 05:51 PM UbuTranscendent wrote:

    > Ahh Cetin,
    >
    > How refreshing it has been to read Seeking Alpha for the last day
    > without any new comments from you. But we knew it couldn't last.
    >
    >
    > Anyway, how about if you hold on to all your long positions FOREVER
    > and let us know how that worked for you AFTER that period of time
    > has elapsed.
    >
    > Looking forward to your next 1800 inevitable comments, Ubu.
    >
    May 11 01:35 AM | Link | Reply
  •  
    too true genghis Khan but be nimble and use stops as this baby could crash at any time. The bears say we have all the arms for reset the next month or so and anticipate the financial taking in the patoot but no one knows as this is not a rational market driven by fundamentals.


    On May 11 01:11 AM genghis khan wrote:

    > I think you'd be wrong to encourage selling at this juncture. This
    > rally is starting to do a sector rotation into the issues which haven't
    > participated. Better to do some homework and pick some more winners.
    > There are many. You will be ground down with any short plays right
    > now.
    >
    > My $0.02
    May 11 01:39 AM | Link | Reply
  •  
    A fine WAKEUP call indeed...

    Thank you for explaining one of the great mysteries of the web.

    In the future, I resolve to treat the serial epitaphs posted under the "Cetin" moniker with the respect due the dearly departed.

    Regards, Ubu.


    On May 11 04:27 PM WAKEUP wrote:

    > Someone (probably a Wall Street broker) is using the name, "Cetin
    > Hakimoglu,", because: Cetin the Cretin is dead. He committed suicide,
    >...
    May 12 10:39 AM | Link | Reply
  •  
    Tsacy,
    You were correct and of course no one will follow your blog. Cetin will get crushed and I'll follow you.
    Thanks,
    N.
    May 12 09:40 PM | Link | Reply
Related Themes:
  1. Market Outlook (170 in last week)
  2. Economy (236 in last week)
  3. Bonds (55 in last week)
  4. Dollar/Currencies (109 in last week)
  5. Earnings (47 in last week)
More by Tsachy Mishal
Other articles by Tsachy Mishal »
Find People on SA