All-in, all over again

Ok, the 5-day trailing average put:call ratio is giving another screaming sell signal (the one in early March was the first in ages to not result in any decline, just a 2-week consolidation). History shows that ignoring these signals is extremely perilous.


The 20-day average must be at an all-time low, though I don’t have the long-term data available:


There is no longer any question that today’s market conditions resemble those seen at major bull market tops. Traders, analysts and the general public are extremely optimistic about the prospects for the stock market, but with a yield of under 2% and a macro environment that is still working off the hangover from a debt binge, the likelihood of a sustained advance is very low.

I continue to hear that the market is being propped up artificially by the Plunge Protection Team or Goldman or JPM or some such combination, and while I think it is likely that parties like these do try to manipulate its direction, I doubt very much that they can have any meaningful impact. The markets are global and an expression of social forces too large and wild to control.

Central banks publicly try time and again to manipulate floating currencies, and their efforts are always futile beyond little blips (just ask the BOJ, which once threw away $30 billion trying to supress the Yen, to no effect). Besides, history shows that markets have always been irrational, since long before the PPT. The very fact that so many people blame the PPT for the market’s rise goes to show that there have been lots of bears out there, and markets don’t peak until almost all of the bears have faded away.

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3 thoughts on “All-in, all over again

  1. Hi Mike. Thanks for cheering us up :-)
    I bought some puts yesterday on IWM at 70. As I had kind of guessed, the 65 didn’t resist long.
    The question is: when will a break down happen. The main reason why I bought the puts yesterday was that my brain was telling me “it looks like it’s never going to fall”.
    But let’s not forget that “market can stay irrational longer than you can stay solvent” or something like that. (one of the few Keynes thoughts I would agree with).

  2. Hi Mike, very strong arguments against the manipulation things. However, from the manipulation corner I see equally compelling arguments/evidences that suggest, e.g.
    1. 27 of last 31 Mondays are up. 16 out of last 17 Mondays are up. This is ridiculous no matter how you look at it statistically. 16 out of 17 is almost outside 2x the standard deviation assuming each day has 50-50 chance of up or down.
    2. Very thin volumes lead to strong melt ups.
    3. Very frequently initial big downs in the futures get settled up starting 3 a.m. (remember the Dubai blow up in November?)
    4. quite a while ago ZeroHedge had a posting of SPX comparison if there were no future melt ups resulting in big gap ups and the present condition, the performance difference is huge. I’ll try to find the post.
    5. The last 6 months, it seems to almost always be the case that when volume is big, there’s a strong decline.

    There are many more, but the Monday melt ups really put the “no manipulation” argument in question.

  3. Roger,

    Interesting about the Mondays and morning futures action. The weak volume rallies and strong volume declines don’t spell manipulation to me, just a rally lacking strong sponsorship.

    But how come everything moves together? Commodities, currencies, world stock markets, credit spreads, etc? This is just too big a production, too wild a forest to tame.

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