Greetings from the USA. I’ve been on the move and under the weather (why is it I only get colds in the US?) for a couple of weeks.
Here’s an old standby, 20-day average equity Put:Call vs. S&P500. As you can see, extreme readings are a very powerful indicator, but the market can take its time in responding, as it is now:
-
The action these days reminds me of May-July 2007, with its extreme optimism, complacency and overvaluation. Remember how quickly things cracked in late July and August, when we went from Goldilocks to Cramer’s famous (and probably scripted) tantrum about how Bernanke needed to lower rates?
Here’s another chart I’m watching. Would you sell it short?
-
The VIX has printed a new low, but its slope is flattening out:
-
One measure of risk is not registering new extremes, the Gold:Silver ratio:
-
Here’s TLT (30 year bond proxy) priced in gold. I’m not saying it’s definitely printed a bottom, but I wouldn’t short this:
-
I gather people are starting to fret about gasoline prices again. I’m not worried, since sentiment is getting pretty lopsided even as prices fail to register new highs:
-
To filter out the reflation effect, here’s crude oil priced in gold. It has done all it needs to clear the oversold condition, with a kiss of 0.08, last seen in early 2007:
-
Dr. Copper’s also all cleared for a fall:
As for the funnymentals, revenues and earnings are still way down from Q3 2008, which was already well into the recession. Quarter over quarter improvements in operating earnings mean nothing without revenue growth, and pricing power is shot. Analyst estimates assume a return to peak earnings within two years, which is insane, since the credit bubble that produced those numbers is not coming back. Credit of every kind is still shrinking. Bank credit just went negative for the first time since the Fed started keeping track in 1974:
-
This remains a technical rally, a relief of universally bearish sentiment that has turned into a momentum-driven, low-volume, low-participation mini-mania. When the momentum runs out, there won’t be a bid to stop the fall for hundreds of S&P points.
We’ve been at peak conditions for about two months now, in terms of the VIX, put:call and sentiment surveys, and prices have fulfilled all kinds of technical targets. What can’t be sustained, won’t.
Nice charts … but can we compare these against the Q1 2002 and Q1 2003 Time frames? Especailly the Q1 2003 when the market went ballistic for the Equitly Put/Call ratio?
Bullishness abounds for sure but what is going to stop the Market? Exhaustion? Missed earnigns?
Nothing will stop this rally. It will just stop.
Do you have a link to a source for long-term charts of the put:call?
Hi Mike,
I found some info here: http://www.cboe.com/data/PutCallRatio.aspx
raw data from Q2 2003
and on Stockcharts.com :
http://stockcharts.com/h-sc/ui?c=$cpc,uu%5Bw,a%5Ddallyyay%5Bdf%5D%5Bpb20!b100%5D%5Bvc60%5D%5BiUo200!La12,26,9%5D&pref=G
but it’s only for the last three years. Anything longer requires membership etc.
I did not believe myself when I posted that this market is going to Dow 12K, Naz 2500 and S&P 1250 … but that is where we may be headed into Q1 2010 … then it’s a 20% to 25% decline possibly …. Ah I guess time will tell ….
Mike,
Glad to see you’re back.
It’s impressive how much the rally has lifted all the boats. Were are at +60% on almost all indices…
wait&pray.
Here’s a good example of the “bullish triumphalism” I was hoping for in goldbugs:
“The wave weenies may see anecdotal ‘signs of a top’ in this, but in general they have been chasing themselves Topsy throughout this entire multi-year bull market.”
http://jessescrossroadscafe.blogspot.com/2009/10/opportunity-for-purveyors-of-gold-in.html
Not sure if we’ll see new highs in gold or not (dollar bearishness still doesn’t seem to have reached a true bottom-marking crescendo) but signs are getting encouraging.
There’s still way too much bearishness for this to be a top. Maybe the pros are bullish, but the average investor certainly isn’t. Look at mutual fund flows – the public is not buying stocks (although they are buying everything else).
Max, do you think the public (and mass population) think itself as more clever than the market and hence is not buying into it? Or that the flow rather shows that people need to sell assets in order to raise cash and pay back their mortgages and credit card lines?
Also, I don’t think Graphite’s example is relevant in terms of “bullish triumphalism” of the gold bugs nor representative of the major part of the “gold bug community”
Everybody is looking for an eye-opener for the market to realize it’s leaving in a dreamworld for the past 6months.
Maybe GE and BofA today will do?
“Max, do you think the public (and mass population) think itself as more clever than the market and hence is not buying into it? Or that the flow rather shows that people need to sell assets in order to raise cash and pay back their mortgages and credit card lines?”
There is some of that, but mostly it’s fear. There is no sign from fund flows that fear has turned to greed. And I think it’s actually contrarian to believe in a strong recovery (yes, there are many high-profile people touting green shoots – BUT NOBODY BELIEVES THEM!)
Sorry Max, I’m not convinced by these arguments.
I guess you can consider me as another contrarian confirmation
With GE and BofA’s disastrous earnings, we might have a breach in the belief that the worst is behind us. The real question is: how much have the accountants sharpen their pencils and how many skeleton have they hidden to get to those results (including the fabulous results from GS, JPM, C and so on)
Sorry, but the public does not know anything. America is being run by a bunch of Financial Frauds … if ony people knew that 40% of Govt. spending is being financed by foriegners and that we have 100 Trillion in Debt that is just piling up … Time and time again, mass sentiment has always proven wrong …. Honestly, we are in no mans land … as the economy gets weaker, the FED will continue to print and borrow .. the same with China … they have no choice but to keep on printing money for fear of a collapese …. for the next 20 years until we reset the Financial debacke that has been created the markets will multiple 50% up and down swings …. I am sure I am not factoring in the exponential growth of population that we will expereince (if there is no Nuclear War, Bio Disaster, Natural Disaster etc.) … as more people enter the workforce and the market, demand for goods will increase and stocks and speculation etc …
Ah well ….
Going long on equities isn’t as contrarian anymore because all of the investment banks are recommending the trade. It might be considered contrarian because the sheeple isn’t doing it though. I do not have a reading on short term sentiment indicators though.
Read this: http://seekingalpha.com/article/163726-what-s-the-other-guy-doing-follow-or-fade
Shows the positioning of retail investors and they did not significantly buy into the suckers rally.
It is contrarian to believe in a REAL recovery… it is consensus to believe in a mild jobless recovery. And a minority believes in the double dip. A jobless recovery is consensus, and I agree with the consensus on joblessness.
A sucker’s rally needs suckers… I did not mean to use the term “sucker’s rally”… I suppose the suckers where the people who were short in June/July.
Warren: Housing Market Getting Worse
http://finance.yahoo.com/tech-ticker/article/355866/Warren-Housing-Market-Getting-Worse?tickers=xhb,%5EDJI,TOL,LEN,KBH
I looked at a Condo the other day (new) … 220K in Charlotte .. did not bite .. after the Quarter closed they called me to give a 20K discount on the spot …
Also, there is far too much bullishness amongst investment letter writers expect Casey Research … all in all … this Market is going to fall starting in March next year, exactly as what happened in March 2002 ….
Well Graphite, Jesse actually said “The Prechterian wave weenies” and you just proved his point. LOL! If you believe what you just said I DARE you to short Gold.
1085 Matt. I’ll short from 1085.