Thursday 9 February 2012

Everybody Loves Stock Market.

This week The “Three Wise Men” have arrived in the market proclaiming their love for the stock market. These wise men came in the form of:

1.       Larry Fink, head of Blackrock.
2.       Nouriel Roubini  better known as Dr. Doom and
3.       Individual Investor in the form of weekly AAII Sentiment Survey.

Fink says everyone should buy equity.  This means he is selling. Roubini turned little bullish which is reminiscent of last year’s capitulation of another perma-bear.

The third wise man, individual investor became ultra bullish, with the net AAII bullish reading at well over 30%. According to BTIG this reading has reached or exceeded 30 only five times in the last five years. And four out of five times the market dipped. Look at the following chart.

So instead of going over various technical indicators screaming danger let me again highlight two primal factors of the market. Greed and Fear. Right now there is no fear in the market and 1400 in SPX is just in front of our eyes. May be something beyond. Just because we cannot see the danger, does not mean there is no danger.  If you are convinced that everything is fixed and there is no risk of losing money, then maybe it is OK to get long. For my part, I am staying on the sideline. There will not be any “Gift of the Magi”.

P.S: As a show love, the insiders are selling like never before;


  1. Isn't this just a replay of 2010? Why is everyone still so surprised at this?

    It seems no matter what happens, everyone's just shocked such a thing happens. No volatility = wtf where's the pullback. Too much volatility = omg market in turmoil. I think USSR has the stock market people are looking for.

    But I'm just ranting. Please don't bother responding to this like it's a well thought out statement.

  2. Dow transports are not making highs like NQ and ES. With continued light volume, the rally smells fishy. Thanks for the post, TexEx.

  3. bb - this is a bull market. We will reach over bought extremes, just as we reached oversold extremes in 2008-09. Many people (me included) bought the very oversold dips in 2008, looking for reversion to the mean. I still look for reversion to the mean, but only when I think we are range bound.

    About a month ago (around ES 1270) I had pointed out that this was a bull, that it was dangerous to short it, that I may get short for a few points at 1320 but may not. Well, my impatient self chose to go short, and had to take a loss.

    We will get a correction, but in a bull market, if our primary focus is going short, we will always lose money. After a dip (to 808 or so on /TF?), we should go up to the 840 TF range. Many stocks are targeting their 200 DMAs (from below) and will not stop until they hit them. And after that who knows? Many major central banks (including India's) are now in easing patterns. This easing may last another year, and this bull market as well. I wouldn't be surprised to see nominal all-time highs on the S&P by EOY 2012.

  4. hi, BB,

    Thanks for those informative news and especially for the insider selling, yes, corporate insider are much smarter than retails and they see things in future based on their corporate activities.

    The market is just ignoring the Europe recession and saying that US can decoupling from Europe, I am not saying US will be having a recession but we should be cautious here coz' this market is a liquidity driven market (LTRO from Europe zone and speculation of QE3) Once the money gone and we are done for the rally (remember how market reacts after QE1 and QE2)

    Based on previous days market activities, it gives me the feeling that either we are in a consolidation stage and rally higher OR smart money is having their distribution here. To me i think with this record bullish sentiment we might have one more higher high or lower high in early April and market starts tumble as i am expecting Q2 earnings would not be great, if no, why the corporate insider are selling (remember this index flags a bit earlier before the market tumble)