Article Reviews, Trading

Doomsayers Are Out In Force!

Following my last blog post about the market scheduled to go down, I was just watching CNBC today and it seems like all the doomsayers are out in force!

  • Doug Kass (Seabreeze Partners Management)
    • Earnings quality are lousy
    • S&P can go to 1400
    • Investors should raise cash.
  • Byron Wien (Blackstone)
    • S&P goes to 1300
    • The market is in euphoria.
    • Earnings expectations are rolling over, and earnings performance are coming down.
    • S&P EPS per quarter has been around ~$25, we are going to see $23.
    • Headwinds coming up: 2% payroll cut, consumer spending is going down, taxes are going up, debt ceiling resolution would involve entitlement cuts.
  • Stewart Richardson (RMG Wealth Management)
    • Sentiment indicators are either consistent with where they have been at previous market highs for the last 2-3 years, prior to market downturns.
    • Expects a 5-10% market correction.
  • Jim O’Neill (Goldman Sachs Asset Management)
    • While the underlying momentum for the year is still very favorable, we can quite easily correct further.
  • Trimtabs
    • Mutual fund inflows in January into equity mutual funds and ETFs was a record $77.4 billion, which are at levels similar to early 2000.
  • Art Cashin (UBS)
    • A head-and-shoulders has formed over the last few days. Left shoulder around 1510, head around 1514, right shoulder around 1510.
    • If the S&P breaks above 1514 to say 1517, then all’s well.
    • If the S&P breaks below 1495 (the neckline), it can go to 1475 or 1450.
  • David Coleman (Vickers Weekly Insider Report)
    • Insiders are waving the cautionary flag in an increasingly aggressive manner.
    • There have been more than 9 insider sales for every 1 buy over the past week among NYSE stocks.
    • The last time executives sold this aggressively was in early 2012, just before the S&P 500 went on to correct 10% to its low for the year.
    • The 8 week sell-buy ratio is 5-to-1, the most bearish since early 2012. The last time was in June 2011, just before the market correction.
  • Bill Fleckenstein (Fleckenstein Capital)
    • Rates are going to be higher exiting this year.
    • Some time this year, the stock market is going to get clubbed but I don’t think it is starting right now.
  • Jim Rogers
    • I am shorting Government bonds. I have been stopped out 2 or 3 times, but I am making money at the moment.
    • Stocks are going up but I don’t see how this can last.
    • After the German election, where is the good news coming from?
  • Jim Iuorio
    • He would sell the S&P now. It is a correction and he thinks it is healthy, and might take a few weeks to a month.
    • When you are in a correction, it feels like something more. The correction ends when there is a rush to the exits, i.e. capitulation.
    • If futures drop below 1490, he would look to 1475.
    • If futures go above 1512, the correction is not here yet.

There you have it. It seems like everyone (at least all the media personalities) are all saying the market is going down. Is this a contrarian signal?

The market action is certainly very volatile, after a long period of consecutive up days, we now just had 5 days (including today) of what I would call ‘whipping action’. The market whipped up on Friday Feb 1, whipped down on Monday Feb 4, whipped up on Tuesday Feb 5, did a double dip on Wednesday Feb 6, and did a whip down again today Thursday Feb 7. Crazy action. Great for intraday traders, not so good for longer-term players.

UPDATE: The market closed well off its low today, which is very constructive. Before the start of the trading session today, I was thinking that the today would be a good up day due to 1) upside momentum from the recovery in the European markets, 2) Nikkei was also not selling off after its huge run up, it started off going lower, then recovered, and 3) I was still seeing decent support and buying across a spectrum of stocks, in particular, yesterday’s action showed that even though it started off as a down day, stocks did not want to sell off. At the start of today’s session, stocks were also not selling off, and was simply wandering around in the low reds, with some stocks still being pushed up.

Because of that, I took some long trades. However the price action in the futures did not conform with my view and I got stopped out twice. The market was making lower lows and lower highs. You don’t fight the tape, so I reversed my position and went short, and managed to get that half-day leg down. I was expecting a bounce at the bottom, but the magnitude of the reversal was surprising. So my long bias for the short-term is back.

With the kind of crazy buying that is taking place, it feels to me it will have to end in some kind of a capitulation, followed by a steep correction. Something to watch out for.

UPDATE (March 31, 2013): The markets continued their upward march to new highs. Looks like the doomsayers out in force turned out to be a contrarian indicator after all.



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