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Urban refugee from the San Francisco Bay area, now living a slacker lifestyle in the redwoods on the Mendocino coast of northern California. Husband to a wonderful wife, father to a pair of bratty dogs, I grow food and make furniture and cider and beer, and do a Celtic music show on public... More
  • Sell Signal?  2 comments
    Jan 26, 2013 12:55 PM

    Back in November, during the post-election hysteria, the NYT published an article describing individual investors cashing out over fears of tax increases, or something. In an Instablog (my first and only until now), I posited that might have been a strong buy signal. (Interestingly, one of the people mentioned in the article commented on the post.)

    Here we are two months later, and the market has soared to new highs; turns out, that was in fact an accurate buy signal. And today the NYT has an article describing individual investors piling back into stocks! You can see where this is going, can't you?

    Most of the negative sentiment over the past couple of years has been driven by politics and/or governmental issues. Business has actually been doing pretty well, in spite of the tepid economic growth rates. So when the headline fears dissipate, it's natural to see a strong rally in stocks, as has happened ever since the "fiscal cliff" hysteria evaporated. The next big fear, a repeat of the debt ceiling debacle, evaporated when the GOP realized they were riding a losing horse. Greece is apparently on track for a balanced budget; to almost everyone's amazement (except Jeff Miller), Europe seems not to be dissolving after all.

    So it's logical that the stock market would rally, as it has. Yet all good things must end, especially stock market rallies. I don't think we are in a "bubble" (PEs are still relatively low for many blue-chip stocks), but when small investors (like me!) pile in, it makes me nervous.

    On Friday I spent much of the day setting trailing stops under some of my winners. I will probably do more of this next week. The market is due for a few down days anyway, so I want to be careful about the width of the trail; this part always gives me fits. I hate getting stopped out of a perfectly good stock by a one-day (or less) drop-and-bounce. And many people have been noting the lack of inflows to stocks and mutual funds - and the odd flows into bond funds, which seem like sure losers at this point - predicting a strong bull market when that reverses. Perhaps that is here, and we have a good run ahead of us. But I regard this NYT article as a warning, and I will be trying to minimize my risk and hold onto the gains I've made so far.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Comments (2)
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  • Bob Johnson
    , contributor
    Comments (2994) | Send Message
    Hi, Thanks for your comment on my blog.


    The information is supposedly in the hands of the right people from my little crusade. The reject a large majority of articles submitted. They could save themseklves a lot of time and trouble if folks had a clearer idea of a format. How some articles get published I have no idea. Could the editors know as little as some of the would be writers?


    I read today, I think the NYT, that the economy would grow by 1.5% this year, but would grow by twice that if it were not for sequestration.


    I think it is amusing that everything the funding was intended to support was a program or project approved by the congress who doesn't want to pay the bills. Yeah, I understand the process... but this is one way of looking at it.


    Anyway, my point is that this loss of GDP at this point is not a positive sign for the market, which supposedly is a future indicator. I suspect we will see a correction. While there are still some stocks which are undervalued and a buy, my guess is about 4% of the market, I believe the number overbought is much greater.


    Markets always change.


    Good luck.
    9 Mar 2013, 09:38 PM Reply Like
  • AlbionWood
    , contributor
    Comments (959) | Send Message
    Author’s reply » Hi Bob, thanks for the comment. I wish you success in your efforts to get some consistency in SA. Let me know if there's anything I can do to help.


    As for the market, my sell signal was obviously early, and some of my stops did get triggered by the "head-fake," which is kind of annoying. Still, it feels like a good time to slowly accumulate cash in expectation of the next pullback. We know there will be a correction; the unkowns are when, and how much!


    I think hardly anybody really understands the sequester and its impacts. The reporting has been typically shallow and unhelpful, and I tried to read the OMB document but found it daunting. I always have to chuckle at declarations like "growth would have been 3% if not for the sequester" since it's difficult enough to get an accurate prediction of growth under "normal" circumstances; who really believes anybody can really predict what it will be now, much less what it might have been?


    Bottom line for me is that any positive GDP growth is positive; only a couple of weeks ago, all I saw were predicitions of *recession* if the sequester took effect. And ECRI predicted a US recession over a year ago, and stuck with that one in the face of evidence to the contrary. Stocks aren't as cheap as they were, but a lot of really good ones still have P/E well below their historical norms, so they don't seem overbought yet.


    Nevertheless, I have sold some calls on stocks that have run up, and probably will do more of that.
    11 Mar 2013, 02:31 PM Reply Like
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