Saturday 28 July 2012

Fear Of Missing Out!



It was a wild week for the market and a grueling one for me.  Let us start by reviewing from the last post:

“Readers know that I am leaning bearish. As a bear, when I see that everyone around is agreeing with me, it scares the day light out of me. If everyone agrees and everyone is right, it would be so easy to make money in stock market. Alas, it is never that easy. “
“Today I closed my short position because I would not be able to monitor it regularly, may be a little too early and left some profits on the table, but hey, no regrets.  The big game is still on and I will be there. For now I think a bounce is brewing, which will kill few bears and trap few more bulls.”
However, for now when everyone has jumped on to the bear side, I would like to step back and wait for a while. I do not trust these bots and dark pools. Moreover, FX has not dropped along with Apple. Euro is still above 1.2062 and AUD has not broken 1.02 yet. They will break down very soon, but for now, the slide has halted.  Short term, the indexes are over sold. This week 173 firms representing 37% of S&P will have their ER. So caution is warranted. “

Now you be the judge.

How do I read this market? I am just amazed that they are able to manipulate the market so easily. As if just by mere wishing. And there are suckers every time ECB or The Fed or their pets mention QE or some sort of bond buying program. Or just simply says, “believe me”. We definitely are walking on quick sand and people still fall for the same BS over and over again.

How do I invest or trade in this market? I do not invest in this market and have been largely in cash for well over two months now. I kept writing that preservation of capital is most important in this environment. I believe that the fundamentals do not justify the stock market going up and requires at least a 20% correction before we can see value again. The sovereigns are struggling and on the verge of bankruptcy or default. The Powers That Be are out of tools and are applying band aid after band aid and are praying each day that passes. The markets are behaving like a terminally ill patient in ICU, who is given blood transfusion and steroids just to keep it alive. When given the shot, it stirs and sits up but the effects of these transfusions are getting shorter and the patient falls back in coma shortly thereafter. At some point, the patient will die.

Understanding that fundamental concept and knowing that manipulators with the active backing of a corrupt governmental system are playing havoc, will help us remain safe. But there are still people out there ( I know, I get comments and emails!) who have faith in the system, who thinks that the market is bigger than the ability of the TBTF banks to manipulate and those who think technical analysis alone will help them make money in this quagmire. Even God cannot save you, guys.

You may ask, very well, now that we know that it is doomed, why are we not short with everything or as Prechter says, short will leverage? Let me explain that with an analogy. Its rainy season and rain is expected. The weather man said at night that tomorrow there will be sun shine. You get up in the morning and see that it is not raining but the sky is over cast. What do you do? I would still take an umbrella while going out but not open it. The situation is somewhat similar here. The dark clouds are hovering over us. The weathermen ( B and D) are telling us that it is not going to rain and everything will be fine. So we remain prepared for the worst but do not open the umbrella either.  I have said repeatedly in the past, never under-estimate the power of these crooks. They can and will distort the market in the short term. TA is powerless in the face of these master puppeteers.  But I take my cue to get out of any short position from TA. Please don’t ask for any particular indicator because there is none. It is a combination of many indicators and judgment call. At the end of the day, we make the call and hope to be lucky. When I got out of the short position on 24th July, I was thinking maybe I got out too quickly. But I was sure of the coming squeeze and I sent out many tweets to that effect.

So what’s next? I think the risk remains to the downside. Against everything negative, low revenue growth,  earnings call misses, global slowdown, looming sovereign default of Eurozone countries and massive , unsustainable debt by USA, only thing holding up the market, is the hope that Bernanke will bring QE on August 1st. By front running QE it is making Bernanke’s job that much difficult. When DOW is 13000, what justification can he have to pump more money? Isn’t the QE been already priced in? Even if QE comes on 1st August, which I doubt, how far will it push the market up when the economy is on stall speed at 30000 ft above the ground.  Personally, I do not think we will have the QE this time. Because it will be politically suicidal for Ben when “Audit The Fed” bill has passed congress and the Democratic hack Chuck Schumer is openly urging him for action. Everyone knows that Ben’s is the only game in town and Republicans will tear into him. But It will be there before election. If what I am thinking works out correctly, can you imagine how disappointed the market will be on August 1st? But we cannot be certain.  It is a bad idea to gamble with the retirement savings. If we must play, then take a calculated risk of losing a very small portion of the portfolio and try out to see what happens. But I would advice strong risk management.  Even if we miss this down opportunity, we can be sure of the easy money opportunity coming next because then there will be QE and we can catch the ride up risk free. 

I want to emphasis that this is not the last opportunity and if we have the power dry, (Cash) we can shoot when the ducks are in line. Right now, they are scattered all over. If we allow our conviction and greed to override caution, we will get hurt.

So let the markets go up for the next two days. Some indicators are over bought, some are not. But over bought can remain over bought for a long time and if you want to short just looking at RSI, that would be a mistake. Wait for the short squeeze to end and momentum to fade. Above all, just remove that “fear of missing out” from your head. If no QE 3 on August 1st, then the road is clear for the bears.

Thanks for all the wonderful comments and emails. The coming week is also going to be tough for me but I will tweet as soon as I get an opportunity. So join me in Twitter (@ BBFinanceblog). But the most important thing for today is to enjoy your weekend with your loved ones. Crooks and their manipulated markets can wait.

24 comments:

  1. It seems like the number of stocks moving 20-30% each day, in both directions, has been increasing substantially over the last 3-4 weeks. Is this any kind of an indicator, other than the markets are simply out-of-control?

    ReplyDelete
    Replies
    1. Kind of negative indicator. Bots are betting each other with out any clear direction. Like playing in casino and not an indicator of economic health.

      Delete
  2. BB, if there is no QE3 on Aug 1, do you see the push down to your 1200 area target?

    ReplyDelete
    Replies
    1. I sure hope so. But please don't get hung up on one particular number. If the SPX falls up-to 1250 and Ben comes with money, are we going to fight him and tell him to wait till SPX reaches 1200? Take these numbers as a guide rather than something set in stone. Please remember this is not a free market!

      Delete
  3. Great post! Succinct and clear. Thanks BB.

    ReplyDelete
  4. Great insight, BB. I follow many blogs, but you are easily in the top three--keep up the great work!

    ReplyDelete
  5. yes great post and well called. Thanks

    ReplyDelete
  6. Hello
    Thank for you're great post last week I did not listen to you're call that something was brewing Wednesday as we open read Canadian index and we were falling I entered short tsx bear Etf well what a reversal entered at 10.07 now 9.75 so will sell half Monday if bullish and re enter at height and pray that Ben does not come to the plate even if he does come to the plate market can not keept going up while being so disconnected from fundamental theynwillmbe a point where to much QE money will not do the boosting expected but by then I may have a busted account lol. All to say sadly that you're post was dead on so dead on it is not funny for me. I let greed to over and fear to miss out. Well I certainly did not miss out the game. I am at the point of lighting up candle at the church. Thank for you're extremely deadly insight forecasting.

    ReplyDelete
    Replies
    1. If you are already short, just hang on for a while more. The turn will possibly come soon. The end may be in sight. Hope it is not an option.

      Delete
  7. I am not an experienced trader. I have been following you for a while and I am amazed and your ability to call the turns. With the degree of accuracy you display I wonder why you don't swing both ways?

    ReplyDelete
    Replies
    1. I am not a day trader and try to reduce risk while looking for long term trend. You can never be sure in this type of market so safety is in cutting greed.

      Delete
  8. Great blog! Thanks so much for teaching

    ReplyDelete
  9. BB - great post (as always). In addition to Inverse ETFs for going short, I have been using TLT as well which has been a great proxy for the deflationary environment we're in. Each time they say rates can't go any lower, they do. And even though you've advised maintaining a large cash position for now (I have), I did pick up some TLT during yesterday's bounce off of the 50 DMA. With risk to the downside in equities, do you see TLT continuing higher as well?

    ReplyDelete
    Replies
    1. I think TLT was a great pick. Did you read the link of Peter Brandt on TLT which I posted few days back? I think TLT will make a terminal high sometimes in August and then I would get out of it. For now it is OK.

      Delete
  10. I found your blog not too long. But for the short period of time since I followed you on twitter, you have successfully called a short entry and exited your positions right before they got crashed. Congratulations to you for you accurate market timing call. Hope you can keep all the good works and share your trading ideas with people have faith to you.

    ReplyDelete
    Replies
    1. Thanks for sharing my thoughts. Please spread the word around.

      Delete
  11. What an interesting week. Obviously they got caught a lot of folks pants down who shorted at 1333. It looked like a controlled selling on Monday-Tuesday continued from Friday, with a gap down and huge tails. VIX got sold 11 of last 12 days. EUR exploded on short covering and squeeze. And even bonds got kicked from highs!

    There was obvious buying panic across the curve in US paper, especially on Monday. I watched bond and treasuries futures tick by tick, it went stratospheric. They crushed all shorts there, run over stops at 152 in bonds.

    On the other side there was speculative selling in PIGs paper across the pond, especially in Spain's one. And what other outcome should we expect when such panic moves happen, ZH goes nuts screaming about "End Of The Word Tomorrow, Maximum Next Week"? Of course they will come and try to do something, or at least promise to do as was the case of this week with ECB. I personally don't have problems with that :) It actually makes markets moves MORE predictable, at least in short term.

    But anyway this is all just a background noise. I think Europe will continue restructure process (aka EU circus), nothing new here and definitely there is no end of the word anywhere close. They have enough resources to survice in foreseen future. US companies will continue to do ok. Fed continues to print. China will bid energy resources across the word. Business as usual.

    I think it worth watching VIX, when they start buying it into close or end of week it may signal some troubles, and even of Friday it didn't move down as much as it would be expected with SPX up 25 points. On the other hand if bonds get crushed, which I would like to see happens sooner rather then later, SPX can skyrocket above 1420 before any correction starts. But it feels like bond crush if more probable at this point then equities correction. Everybody front run Fed and bought bonds, but Fed may disappoint them this time. It's one game in the town, but essentially there is only one buyer in the town left, when he leaves table the game will be over.

    I what I personally don't understand is those talking heads proclaiming "investors rushed to parked money in US paper at record low yields". Why would they be willing to park money at zero or even negative yields when they can create diversified portfolio of equities, sell some calls against it, buy dividends stocks and so on? Put the fu... money to work? Especially having reassurance from Fed that it save the marked?

    For me all this bond thing smells like a complete bubble and sounds much dangerous place to be in than any Europe PIGs or US equities problem. And the other one I like is Canadian real-estate bubble :)
    Bonds and Canadian real-estate are the best right now, carefully crafter multi-year bubbles :)

    ReplyDelete
  12. "If no QE 3 on August 1st, then the road is clear for the bears."

    for max. 3 days and then the market goes up again on hope, love and insanity

    ReplyDelete
  13. i m keen to play LONG....so when should we get a BIG one upmove ...since we have thought 2012 to be a bull year.....there must a big rally ahead...could be around 1st September like in 2010

    ReplyDelete
    Replies
    1. The short play has not been good. I think you may be right. Sept. onward it will be up move.

      Delete
  14. I bought TVIX almost two weeks ago, held it 4 days and sold it back just before the move up in the market last week with a 30% gain

    ReplyDelete