Toppy action today: bulls ready to stampede?

Today’s action reminded me of the trading on Sept 23, with a ramp up followed by a swan dive in the late afternoon. Traders will remember the 23rd as the Fed Wednesday that marked the top prior to the 5% sell-off into the first week of October. Here’s a 1-week view of the Russell 2000 futures:

Source: Interactive Brokers, LLC

We’ve now had 6-7 days of mostly sideways action on very high DSI and very low Put:Call readings, indicating persistent bullishness and complacency in the face of stagnating prices.

The market the last several days has been lead by the big tech names, the same stocks that charged ahead just as the market topped in October 2007.

Interestingly, gold has not sold off hard with stocks. I’ve just gone long a touch of gold and silver futures as a hedge to my stock futures shorts, since sentiment there is not extreme at present and the metals usually terminate in spikes, not rolling tops like they have formed recently. I remain bearish gold and silver on a multi-month time frame.

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12 thoughts on “Toppy action today: bulls ready to stampede?

  1. “I remain bearish gold and silver on a multi-month time frame.”
    Well, you are betting against THE most successful traders of our times – John Paulson, Andrew Hall and George Soros. Make sure you keep your trading capital to a minimum so you don’t have to beg on the street.

  2. MD: When was Soros bullish on gold?

    The market is overbought…. this would probably spark a 10% pullback. Maybe 12%… the case for a much larger pullback is contingent on sentiment. There is no reason why the bear’s beatific vision or wet dream would occur now when so many people are long term bearish. I did feel we were due for a pullback in the beginning of October if there wasn’t earnings season to bring out the animal spirits.

    I do expect better than expected earnings due to lower wages, weak dollar, and no significant increase in commodity prices. Perhaps, a 4th Quarter short position might be a good idea if one is betting on a dollar rally.

    I am less convinced of the short/medium term bearish view (in bearish, I mean the bear’s wet dream of the S&P 500 below 500.) I doubt the will happen because there are so many people competing for return by looking for “value”, and low interest rates means one can put higher multiples on stocks. Furthermore, I think the market nows as a very strong built in support — too many people are long term bearish, and the ratings for CNBC has plummeted, and bearish websites such as zero-hedge, and seeking alpha are popular. In addition, mutual fund allocation to equity funds are at 44% far below the average of 51% from 1998-2009. Metagame considerations say that bearish views must be more long term bearish than other bearish views.

    Tentatively, I think we will retest the new highs, although this seems to be a set up to weed out some of the longer term bearish deflationists (and inflationists). I lost my enthusiasm for certain deflation trades such as long Treasuries due to a poll on Zero Hedge that should about 2/3′s deflationists over an 18 month horizon. I still like long dollar vs Euro and Pound, and short gold as “deflation” trades. Maybe short copper.

  3. To make a “pure” bearish bet on the economy, while filtering out the inflation/deflation debate, you could short stocks, energy and industrial commodities against gold. Just match up equal parts long gold futures and short other stuff.

    I still don’t see gold running away here. Touching 1085 before starting a big decline, like Graphite mentioned, sure, but not 1200 and certainly not 2000 anytime soon.

    Besides, with stocks ready for a big correction at the very least, you’d have to make a case for why gold should decouple this time. It sometimes does, but more often lately it’s been falling when stocks fall.

  4. Mike, I guess you saw Amazon a +14% in after hours, $106.
    we weren’t expecting this :-)
    and a PE of around 65…

    but the good news is: with Apple, Google Amazon and Yahoo done now, there are good reasons for the nasdaq to have topped…

    wait & see. HTE saved my day…

  5. “Damon, please go away.”

    I guess anybody who disagrees with you is told the same thing. Surrounding yourself with yes-men is the way to disaster. No wonder you don’t have a clue as to what’s going on in the markets. I would definitely go away, but it’s just been (and still is) a lot of fun seeing you piss away your trading capital following blindly in the footsteps of Robert Prechter.

  6. Matt Damon, you’re an actor, you’ve played in great movies. If it’s so fun for you to watch us on this forum, don’t spoil it, don’t ruin it, go get yourself some pop corn, shut it up, and watch. Just like in any movie theater.

  7. Damon, like all trolls, thinks that my problem is that I disagree with them on the markets, rather than their disrespect and lack of any etiquette. That’s the only thing that has gotten anyone banned from this blog. Ironically, the other person banned for rudeness was attacking me (and others here) for our affinity for gold.

    It says a lot about a person if they hang around a place where they are not wanted and refuse to leave when asked by the host.

    In this video from the other night, Tim Knight goes over the difference betwean respectful disagreement (which can be mutually beneficial) and trolling:

  8. Mike,
    The worst bit is that you are bullish long term on gold, aren’t you?
    Amazon is trading at $117 a share, with a PER of 75 now.
    It seems like it might be a juicy short to come?

  9. Yes, I’m long-term bullish gold, and recommend that people make a habit of saving some portion of their earnings in gold.

    If you look at a long-term chart of AMZN, you’ll see some other instances of huge jumps like this. They all faded fast.

  10. On a different subject (if it is of any interest to anyone) …

    Lee Iaocca Rant! Where is the Outrage????

    —————————————————————————–

    Lee Iacocca Says: ‘Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage? We should be screaming bloody murder! We’ve got a gang of clueless bozos steering our ship of state right over a cliff, we’ve got corporate gangsters stealing us blind, and we can’t even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, ‘Stay the course..’ Stay the course? You’ve got to be kidding. This is America , not the damned, ‘Titanic’. I’ll give you a sound bite: ‘Throw all the bums out!’ You might think I’m getting senile, that I’ve gone off my rocker, and maybe I have. But someone has to speak up. I hardly recognize this country anymore.. The most famous business leaders are not the innovators but the guys in handcuffs.. While we’re fiddling in Iraq , the Middle East is burning and nobody seems to know what to do. And the press is waving ‘pom-poms’ instead of asking hard questions. That’s not the promise of the ‘ America ‘ my parents and yours traveled across the ocean for. I’ve had enough. How about you? I’ll go a step further. You can’t call yourself a patriot if you’re not outraged. This is a fight I’m ready and willing to have. The Biggest ‘C’ is Crisis! (Iacocca elaborates on nine C’s of leadership, with crisis being the first.) Leaders are made, not born. Leadership is forged in times of crisis. It’s easy to sit there with your feet up on the desk and talk theory. Or send someone else’s kids off to war when you’ve never seen a battlefield yourself. It’s another thing to lead when your world comes tumbling down. On September 11, 2001, we needed a strong leader more than any other time in our history. We needed a steady hand to guide us out of the ashes. A hell of a mess, so here’s where we stand. We’re immersed in a bloody war with no plan for winning and no plan for leaving. We’re running the biggest deficit in the history of the country. We’re losing the manufacturing edge to Asia , while our once-great companies are getting slaughtered by health care costs. Gas prices are skyrocketing, and nobody in power has a coherent energy policy. Our schools are in trouble. Our borders are like sieves. The middle class is being squeezed every which way. These are times that cry out for leadership. But when you look around, you’ve got to ask: ‘Where have all the leaders gone?’ Where are the curious, creative communicators? Where are the people of character, courage, conviction, omnipotence, and common sense? I may be a sucker for alliteration, but I think you get the point. Name me a leader who has a better idea for homeland security than making us take off our shoes in airports and throw away our shampoo? We’ve spent billions of dollars building a huge new bureaucracy, and all we know how to do is react to things that have already happened. Name me one leader who emerged from the crisis of Hurricane Katrina. Congress has yet to spend a single day evaluating the response to the hurricane or demanding accountability for the decisions that were made in the crucial hours after the storm. Everyone’s hunkering down, fingers crossed, hoping it doesn’t happen again. Now, that’s just crazy. Storms happen. Deal with it. Make a plan. Figure out what you’re going to do the next time. Name me an industry leader who is thinking creatively about how we can restore our competitive edge in manufacturing. Who would have believed that there could ever be a time when ‘The Big Three’ referred to Japanese car companies? How did this happen, and more important, what are we going to do about it? Name me a government leader who can articulate a plan for paying down the debit, or solving the energy crisis, or managing the health care problem. The silence is deafening. But these are the crises that are eating away at our country and milking the middle class dry. I have news for the gang in Congress. We didn’t elect you to sit on your asses and do nothing and remain silent while our democracy is being hijacked and our greatness is being replaced with mediocrity. What is everybody so afraid of? That some bonehead on NBC news or CNN news will call them a name? Give me a break. Why don’t you guys show some spine for a change?

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