Wednesday 25 January 2012

New Bull Market or Irrational Exuberance?

Are we in a new bull market? Surely the Boyz would like us to believe that. Remember that time in not so distant April 2011 when the famous perma bear David Rosenberg capitulated and accepted that may be a new bull market has started.  Ironically that was the top of the market.

What we see today is pure and simple irrational exuberance. Nothing Uncle Ben said today was new, except that they will maintain the ZIRP till 2013 or infinity. There was no talk of QE3. On the other hand, everything that we know in TA is way out of sync and over extended. But we have been in such set up many times before and yet our collective memory is no better than a goldfish. As much as we talk of being a contrarian investor, we still fall victim of collective emotion and greed.

If the purpose of this set up was to lure in investors, they have been quite successful.  Investors have take out money out of the equity mutual funds in the last eight months of 2011, selling into the stock market decline. Now as per the ICI data for the week of January 11, 2012,: “Equity funds had estimated inflows of $1.43 billion for the week, compared to estimated outflows of $9.37 billion in the previous week.” Investors have now bought in the hype that the new bull market is here and now and they do not want to miss the bus.
The fact is none of the reasons that are being given for the rally are true. Neither fundamental nor technical. 

Last year, when everyone was sure that the market collapse is imminent, I was possibly only one saying that the world is not going to end. Now when everyone and his uncle are convinced of a new bull market, I dare to say that we are being set up and a bigger correction is around the corner.

Today it may sound like a broken record but one week is not a long time in the life time. We will see.


  1. Thanks for your daily updates - added to my shorts today.

  2. I fully agree with you. I have been swimming against the current for sometime but still no banks in site. -Hanuman

  3. Hi bb,
    ST Top will come tomorrow around ES 1328, TF 800.

    I learned again that the way to go short is via TZA and or future month puts. 90% of my short is via TZA, bought at an average of TF 784. I have zero worries about that. 10% of my short is via Feb puts, average TF 773. I am probably going to lose money on that, even though TF will be at 760 by Feb 8. And I am scared about that. Oh well. LIve and learn.

  4. seems like a lot of compnaies are having good earnings reports. is this driving the market? just i thought, i have done no research.

  5. BB added SRTY at 11...i am worried that it may go under 10 now...are we going to hit 1400 on S&P or what?

  6. I agree that recent rally does not support fundamental nor technical specially seen those strings of frequent gaps after gaps from overnight.
    Investors do not need to be surprised by unexpected patterns of market behavior whether due to HFT or interest of certain group which does not offer benefit for all investors nor the growth of the country. Rally should not be prolonged and designed to take innocent investors to lose who enter late at top, rather to make a correction to let the new investors to participate to profit according to fundamental and technical.

  7. Nice to read a contrarian view when every other site has turned mega-bullish. Like you said before, this just doesn't feel strong enough to be a bull. All this positivity and yet the S&P struggles to push forward.

    I am short S&P and am willing to hold until the correction. We've yet to test the 1300 support, let alone 1280. At the very least, we'd need a pull down before a strong push up can be made.

  8. ...but i dont think markets can be manipulated....they r too big.....

  9. Jonak,
    90% of the trading is done by 50 biggest investment bankers like JPM, GS and most of it through dark pool, which you and I cannot see or know.
    As Win has said, the today's intra-day high would probably be the highest which SPX can go.
    Earning reports have been 50:50, not great.
    I think next week will be very interesting.

  10. Hi BB,

    I am following your blog for sometime now. Thanks for your insight. Can you kindly suggest option for TZA & VXX please? Or any alternate way to play this.


    1. I really am not allowed to make any investment advise.I would be sent to prison if I venture to do so. Please understand my limitations my friend. I wish I could help you better.