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Tuesday, January 15, 2013 - Short Market Comment

|Includes: DIA, QQQ, SPDR S&P 500 Trust ETF (SPY)

Not much to report today as most of the indicators look almost identical to yesterday's report. So instead I'll pass along some information sent to me by another trader. A friend of mine tracks the TSE's weekly release of trading information, in particular, the trading activity of margin traders. Those who trade on margin rarely do well, and when they do, it's generally a sign of an impending top rather than continued good times. It might seem like a stretch that the P&L of Japanese margin traders is correlated with the peaks and valleys of the S&P, but just upon a visual inspection there obviously is some correlation. Furthermore:

  • This is the closest to break even that margin traders have gotten 5 years (holding at approximately at -3%).
  • -3% profit/loss is actually the best performance margin traders have had since virtually the exact peak of the S&P in 2007.
  • Since 2009 their P&L has oscillated between -20% and about -5%, so there at the high end of the range now.

I'm not sure what conclusion we can draw from this alone since during the 2004-2007 period this "indicator" routinely got even higher. Still, it's at levels that have lead to pullbacks every time during the 2009 - 2012 period.

Full update tomorrow,

-Bill L.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SPY over the next 72 hours.