July Markets: The Running of the Sheep 34 comments
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It's official, the oft-repeated yet chronologically irregular spectacle, "The Running of the Sheep" has once again begun on Wall Street.
Although not as well known as Pamplona's "Running of the Bulls", the ROTS is no less dangerous, as "investors" (i.e., sheep) trample each other to pile money into, or in other examples, pull money out of the stock market at what has historically proven to be EXACTLY the WRONG TIME.
As recently as 5 months ago, the market was at absolute low levels not seen in more than a decade, and at low valuation levels not seen in a generation. Yet "investors" climbed over each other to pull money out of this arguably dirt-cheap market. Today we get word that equity fund inflows this week have been HUGE - the largest since August 2007, shortly after which the market peaked, followed by a sickening plunge.
Now that the market has run up some 46% since the last Running (away) of the Sheep, the wooly stampede has reversed direction. Will the carnage be just as bad this time? History says yes...
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This article has 34 comments:
Remember we are now +48.27% up from March 9th, 2009. That might seem a lot. But not if you consider we are still down -36.80% from Oct 10, 2007.
spreadsheets.google.co...
On Jul 31 07:16 PM DaveW wrote:
> This is the dismal truth now, isn't it? Institutional vs. Retail
> money flow have a pretty strong inverse correlation, been that way
> for many years. The sad thing is the awful set-up, compliments of
> CNBC and the like, going into the next phase of this terrible downturn.
> This latest rally has been a massive short-covering where junk (e.g.
> LVS) out-performed value (e.g. KO). The absence of significant short-interest
> relative to long positions will create a much greater velocity sell-off
> when it comes. To the absolute horror of the sheeple....
Does anyone know?
Anyways, my 401(k) is up this quarter BIGTIME. Man, am I making some serious dough.
But I'm not stupid-this time when the DOW hits 14k I'll go ahead and sell!!!!!!!
Baaaaahhhh
(oh, now I get it)
Everybody keeps buying, when the market keeps going up because of their buying. And once they are fully invested and everyone who wants to buy has finished buying. Then the selling will begin. And without a lot of buyers to continue buying. A lot of investors are going to loose a lot of money.
Which might lead to a true bear market bottom. Because at a true bear market bottom, investors usually are so discouraged by their losses that they loose their interest in the stock market.
On Jul 31 11:00 PM j-dub wrote:
> What is this guy talking about?
> Does anyone know?
>
> Anyways, my 401(k) is up this quarter BIGTIME. Man, am I making some
> serious dough.
> But I'm not stupid-this time when the DOW hits 14k I'll go ahead
> and sell!!!!!!!
>
> Baaaaahhhh
>
> (oh, now I get it)
Volume has been low, and program trading has been high. So, perhaps, there are few net buyers and sellers, and, instead, what we have is "circular trading" to drive up prices. In this imaginary scenario, Investment Bank A buys a stock from Investment Bank B, then B buys it back from A, and the circle goes on and the price goes up. At the end of the day Bank A and Bank B still own the same shares, except they are now worth more and the month-end statements are great, and everyone gets a bigger bonus.
In this hypothetical scenario of artificially inflated share prices, the only losers are net buyers and the only winners are net sellers; but Investment Banks A and B are still whole, as they have no net change in their positions.
Maybe I’m just lucky, I own: ETFC, SRZ, BAC, CNO, HIG, JNY, RF, FORSY, GE, DDR, FITB, WEN, OCNF, DRYS, GNW, TRMB and have made a killing on all of these within a very short period of time, especially GNW, CNO, BAC, FORSY. ETFC & SRZ.
however, when techs collapsed, they took my good, non-tech stocks with them. i was burned, even though i had not played with fire. be real careful out there. when the tide goes out, even good boats sink.
Congrats on your good fortune, to date, but it seems like we're back to a time when everything is going up (the stock selection via dart board method). To paraphrase a saying that's been applied to pilots and racecar drivers.."There bold traders, and there are old traders, but there are no old bold traders".
On Aug 01 10:27 AM Novice Trader wrote:
> It seems like every article / post I read on this site talks about
> why the market is overbought, how the sheep are fools, the fundamentals
> don't support the stock price, blah blah blah. I like the naysayers
> as much as I do the cheerleaders, both give me perspective. Personally
> though, I could give a crap why any given stock is up provided I
> own it cheap. If I think it's going to dive more than 5%, I'll sell
> it and still pocket a nice profit.
>
> Maybe I’m just lucky, I own: ETFC, SRZ, BAC, CNO, HIG, JNY, RF, FORSY,
> GE, DDR, FITB, WEN, OCNF, DRYS, GNW, TRMB and have made a killing
> on all of these within a very short period of time, especially GNW,
> CNO, BAC, FORSY. ETFC & SRZ.
I buy only tech stocks (because I understand that sector) and have done well. I have had a few clunkers, but mostly winners. I make $40-80 a day on my little basket of stocks and I am up 12% on the year. Doesn't sound like much? Well multiply $60 x 250 trading days and it comes out to a decent addition to ones income. And really, where else are you going to get 12% on your money?
It has to be crashingly apparent to everyone that this is not a buy and hold market. It is more akin to gambling in my opinion. My father played the craps tables for years with a system of dragging back periodic profits while still having a bet on the table. It was all about the odds, this is all about momentum. Be smart, read a lot, pay attention to your stocks, don't be greedy. There is money to be made even in a sheep stampede.
Welcome to the top folks.
On Jul 31 09:13 PM E Nuff Sed wrote:
> I think the market is in the fair value range now. Some sectors like
> consumer staples , big pharma and industrials are undervalued, some
> like resources and financials may be over valued.
>
> Remember we are now +48.27% up from March 9th, 2009. That might seem
> a lot. But not if you consider we are still down -36.80% from Oct
> 10, 2007.
> spreadsheets.google.co...;output=html
www.tradersnarrative.c...
Earnings for 2008,2009 are much less than 1/2 of total earnings for 2006,2007 so unless you somehow think that earnings for 2009,2010 are magically going to somehow more than double, then what's your basis for thinking the market is not overvalued other than wishing it was true? Earnings numbers simply don't support that wishful thinking.
Further to the above, Doug Short (dshort.com) has shown that in every previous major recession and market crash has resulted in PE10 metrics dropping to less than PE10 measures. Since this recession and market crash HAS NOT dropped to these levels, it highly unlikely that a market bottom has yet been seen in this recession and market crash. The obvious conclusion being that this market is in fact substantially overvalued. But, you can make the arguement that "this time it's different", which is exactly what every commentator says in every market crash. The reality is that they have been wrong every single time, because it has never been different. So in essence, you are making a claim that has been proven to be wrong in every single previous recession and market crash. But if your willing to bet on a "hope" that has always been wrong before .... go ahead, it's your money to lose and you may well lose a bunch of it, if history is any guide. We believe much better lower priced buying opportunites will become available in the coming months/years.
On Jul 31 09:19 PM dividendmachine1 wrote:
> E Nuff Sed has made an excellent post and there is not much to add
> to it
> As a person who has become financially independent solely by investing
> and been an almost 20 year veteran of the market I can say that the
> overall market here is HARDLY overvalued although there are many
> sectors and lower quality stocks which are
WARNING: IF YOU CAN'T CONCENTRATE FOR MORE THAN 60 SECONDS, SKIP THIS ENTRY.
The New Normal theory states that the recovery will be long and hard with GDP at 1.5 - 2.0% for possibly a decade.
If true, Earnings will bump along at a similar pace and will not recover to the high Earnings before the recession. So now we have low Earnings.
Why should the Price part of the P/E ratio rise?
Simple. Once investors that have nearly a trillion dollars earning nothing in money market funds come to accept this new low Earnings rate, and they come to realize that this is the way it will be for some time, they will decide to jump into the market because it is the lesser of two evils (i.e. no earnings vs. low earnings with some risk). This will bid up the price of stocks based simply on greater demand, not greater performance.
So now you have a new LOW Earnings number and a new HIGHER Price number and the new P/E ratios will jump higher than before the recession.
Again, this will not signify a higher expectation of future earnings as in the past, but instead, will reflect the New Normal of low growth, high unemployment and a long drawn out 5 years of debt defaults in credit cards, commercial loans, and housing mortgages which will force the further consolidation of the banking industry.
WHAT THIS MEANS TODAY IS THAT YOU CAN INVEST IN JUST ABOUT ANYTHING AND YOU WILL SEE A GAIN IN YOUR POSITIONS OVER THE NEXT 6 – 12 MONTHS, JUST BECAUSE OF THE NEW MONEY POURING BACK INTO THE MARKET.
Gard darn sheep hooves hurt more than most realize..................
On Aug 01 08:39 AM grey road wrote:
> 14000?... sounds like you might be the one who is trampled..good
> luck.
On Aug 01 03:24 PM j-dub wrote:
> Trampled after going short in mid March
> Gard darn sheep hooves hurt more than most realize..................
>
This rally makes perfect sense. The stock market tends to start back up a few months before recessions end. There has been significant--but not conclusive--evidence that the recession may be ending for the last several months. With each passing week, the evidence gets stronger. Sure, this may just be a bear-market rally, but who cares? Think the market's going to crash imminently? Fine, protect yourself with tight sell-stops.
I expect a lot of thumbs-down on this comment, because it seems to go against the grain of the majority here on Seeking Alpha. That's fine. But what I describe above is exactly what I've been doing. I published two articles about it. May 13: "This Rally Is Sustainable" (seekingalpha.com/artic... ); July 22: "This Rally Is Sustainable: Halftime Report" (seekingalpha.com/artic... ). It will work until it doesn't, at which time I will gracefully exit via predetermined sell stops.
On Aug 01 03:23 PM Tom Colangelo wrote:
> P/E RATIOS SET TO RISE IN Q4 2009 THRU 2010
>
> WARNING: IF YOU CAN'T CONCENTRATE FOR MORE THAN 60 SECONDS, SKIP
> THIS ENTRY.
>
> The New Normal theory states that the recovery will be long and hard
> with GDP at 1.5 - 2.0% for possibly a decade.
>
> If true, Earnings will bump along at a similar pace and will not
> recover to the high Earnings before the recession. So now we have
> low Earnings.
>
> Why should the Price part of the P/E ratio rise?
>
> Simple. Once investors that have nearly a trillion dollars earning
> nothing in money market funds come to accept this new low Earnings
> rate, and they come to realize that this is the way it will be for
> some time, they will decide to jump into the market because it is
> the lesser of two evils (i.e. no earnings vs. low earnings with some
> risk). This will bid up the price of stocks based simply on greater
> demand, not greater performance.
>
> So now you have a new LOW Earnings number and a new HIGHER Price
> number and the new P/E ratios will jump higher than before the recession.
>
>
> Again, this will not signify a higher expectation of future earnings
> as in the past, but instead, will reflect the New Normal of low growth,
> high unemployment and a long drawn out 5 years of debt defaults in
> credit cards, commercial loans, and housing mortgages which will
> force the further consolidation of the banking industry.
>
> WHAT THIS MEANS TODAY IS THAT YOU CAN INVEST IN JUST ABOUT ANYTHING
> AND YOU WILL SEE A GAIN IN YOUR POSITIONS OVER THE NEXT 6 – 12 MONTHS,
> JUST BECAUSE OF THE NEW MONEY POURING BACK INTO THE MARKET.
On Aug 01 05:13 PM David Van Knapp wrote:
> Boy, what a bunch of naysayers and pessimists. Who are the sheep?
> Those who invested (or traded, I don't care what you call it) somewhere
> shortly before or after the market started up on March 10? Or those
> who kept repeating, "this rally is for suckers," "the market is fixed,"
> "this can't go on," "dead-cat bounce," who were shorting the market
> waiting for the crash, or just stayed out, and who find themselves
> 4 months later with no gains (or losses if they shorted)? Who got
> shorn?
>
> This rally makes perfect sense. The stock market tends to start back
> up a few months before recessions end. There has been significant--but
> not conclusive--evidence that the recession may be ending for the
> last several months. With each passing week, the evidence gets stronger.
> Sure, this may just be a bear-market rally, but who cares? Think
> the market's going to crash imminently? Fine, protect yourself with
> tight sell-stops.
>
> I expect a lot of thumbs-down on this comment, because it seems to
> go against the grain of the majority here on Seeking Alpha. That's
> fine. But what I describe above is exactly what I've been doing.
> I published two articles about it. May 13: "This Rally Is Sustainable"
> (seekingalpha.com/artic...
> ); July 22: "This Rally Is Sustainable: Halftime Report" (seekingalpha.com/artic...
> ). It will work until it doesn't, at which time I will gracefully
> exit via predetermined sell stops.
I agree with the rest of your post, except this
On Aug 01 10:04 AM enigmaman wrote:
... He doesn't say
> how cheap but nobody knew it would run this much either, so its anybodies
> guess where to from here, but this does seem like another set up.
> If it turns out to be, then watch out below, that being the case
> I would expect few will get in line to take another ride on the market
> monster
Prechter called the wave up from the March bottom as soon as it broke the trend channel (first week of April) from the 2007 highs. At that time he predicted the end of this bear market rally would be between 1000 and 1100 in the S&P; 10000 & 11000 in the Dow.
We'll see if he gets it right again. I'm not betting against it.
Yes, historically, the market anticipates a rebound in the economy, as defined by GNP, by 6 months, or so. But what happens in the case of a "W" shaped rebound? Imo, the market is currently focusing on the middle spike of the "W", and totally ignoring what follows.
On Aug 01 05:13 PM David Van Knapp wrote:
> Boy, what a bunch of naysayers and pessimists. Who are the sheep?
> Those who invested (or traded, I don't care what you call it) somewhere
> shortly before or after the market started up on March 10? Or those
> who kept repeating, "this rally is for suckers," "the market is fixed,"
> "this can't go on," "dead-cat bounce," who were shorting the market
> waiting for the crash, or just stayed out, and who find themselves
> 4 months later with no gains (or losses if they shorted)? Who got
> shorn?
>
> This rally makes perfect sense. The stock market tends to start back
> up a few months before recessions end. There has been significant--but
> not conclusive--evidence that the recession may be ending for the
> last several months. With each passing week, the evidence gets stronger.
> Sure, this may just be a bear-market rally, but who cares? Think
> the market's going to crash imminently? Fine, protect yourself with
> tight sell-stops.
>
> I expect a lot of thumbs-down on this comment, because it seems to
> go against the grain of the majority here on Seeking Alpha. That's
> fine. But what I describe above is exactly what I've been doing.
> I published two articles about it. May 13: "This Rally Is Sustainable"
> (seekingalpha.com/artic...
> ); July 22: "This Rally Is Sustainable: Halftime Report" (seekingalpha.com/artic...
> ). It will work until it doesn't, at which time I will gracefully
> exit via predetermined sell stops.
The amount of my gain was not a brag, just a fact, a YTD. If you are a better investor and have gotten bigger gains than I have then congratulations and keep it up. Please do not denigrate someone just because their success might not be what you think it should be. All of us are doing the best we can and any success we amateurs can scratch out in this rigged game should be applauded.
Good luck with your investments in this challenging market.
On Aug 01 12:53 PM Danny Furman wrote:
> I wouldn't brag about 12% in this market unless I was talking about
> a week.... The last few days have been quite a spectacle, though,
> and the author appears to be spot on. The market can't hold onto
> gains because for every (retail) buyer at these prices there are
> 2 (institutional) sellers snagging his money. 2 massive sell offs
> in a row mean this level of new money needs to continue entering
> the markets for gains to continue.
> Welcome to the top folks.
I honestly don't care what the shape of the economic recovery is: V, W, U, |, !, ?, or whatever. I come from a legal background and could construct an argument for any of them. Much of the argument would be based on conjecture, as any prediction about the future must be, by definition.
But the conjecture would be based on facts (i.e., what has already happened to the current point), combined with a set of beliefs or principles about what is likely to happen in the near future, grounded in common sense and perhaps illustrated by comparisons to what has happened in similar situations in the past, to the extent we can find similar situations. When you say you think we are in the middle of a W-shaped recovery, I am sure you have your reasons for believing that, and that you could articulate them convincingly.
The shape I care about is not the economic recovery, it is the market's recovery. They are not necessarily the same. The shape I'm looking for is /, that is, up and to the right. I don't care about "noise" along the way, so long as the basic trend continues. For example, I did not get caught up in the technical analysts' unanimous opinion a few weeks ago that there was a "perfect" head-and-shoulders pattern whose neck got broken and therefore the market was sure to fall right off the cliff. In fact, the market started one of its steepest climbs the very next day, and they all ended up red-faced.
As to your question, what happens if we are in a W-shaped recovery, the answer is, I don't know. I think this is a sentiment-driven market, and as long as the "net news flow" is somewhat positive, the market will continue to climb, with the usual day-to-day stumbles and inconsistencies. If and when it stops climbing and starts going backward, my trailing sell stops will get me out. FYI, I've got them mostly at 8% and update them about once per week.
Simple me, I'll just continue to invest in gold. It's done me gone over the last 6 years and even the last 12 months, or YTD.
a: that's how you make money
b: you learn from making (well intended) mistakes
On Aug 02 02:22 AM Redpenny wrote:
> Mr. Furman
>
> The amount of my gain was not a brag, just a fact, a YTD. If you
> are a better investor and have gotten bigger gains than I have then
> congratulations and keep it up. Please do not denigrate someone
> just because their success might not be what you think it should
> be. All of us are doing the best we can and any success we amateurs
> can scratch out in this rigged game should be applauded.
>
> Good luck with your investments in this challenging market.
>
> On Aug 01 12:53 PM Danny Furman wrote:
Anyway, between Mar 9th and June 6 of this year I made it all back (except the burn on my house. That doesn't hurt so much because, well, it's my home). VALE, BOOM (wow!), RIO, FCX, gold, silver, some shipping stocks. Anyway, if you lose half you have to make 100% on the remaining money just to break even, which I did by fierce day/swing trading (not noticing, of course, that if I'd held pat I would have done almost half as well, even if I was in a coma). I think I'm up about 130% so far but it is not clear where to go from here. You'reall smart guys and I enjoy your comments, but the larger world and US (real) fact pattern seems to conflict the charts and the talking heads, both of which I watch because my victi...er, counterparties apparently believe this stuff.
Anyway, you shouldn't mock Redpenny for doing 12 percent and I don'tthink he's being overly sensitive. Maybe he didn't get stung like most of us. It was still possible through those dark days, if you had the right moves (well, like cash). The important thing always is to not lose money...whereas I did a bang up job. Redpenny has nothing to apologize for; a steady performance is very desirable, although not my cup of tea (I am very popular at my brokers...in three months I did more than 250 trades...). Still... it may be time to cool the jets and start looking for that steady return, instead of swingin for the trees.....because I am utterly baffled about the future, given the nonsense being shoveled by the Fed.
Good luck to all.