June 29, 2009

Time Correction

I often post about Michael Santoli's weekly Barron's column, usually when I disagree with him (otherwise what's the fun?). This week, however, I actually agree 100% with the point he's making that, rather than a regular correction (a percent or a point correction), we might get a "time correction" in which "sideways action rather than sharply lower prices digest the gains."

June 26, 2009

Systematic Trading

I'm reading a pretty fascinating book, Profitability and Systematic Trading by Michael Harris. It strikes a good balance between basic and advanced stuff.

As befits a systems guy, Harris strongly rejects the notion that the market is some kind of independent entity above and beyond its participants. According to him, "any attempt to assign a special or absolute quality to the word market, other than the fact that it is the collection of its participants, is a distortion of reality and may eventually lead to false trading or investing decisions."

It is true that many traders (and most discretionary traders) have an almost mystical relationship with "the market" and when they watch intensely those wiggles on the daily (or the 5-minute) chart, they see (or think they see) more than the end result of different trades coming from different market participants. They almost see a living organism going this way and that, and try to anticipate where the wild beast is going next.

June 25, 2009

1930

There's a blog (News from 1930) that posts a selection of articles from the Wall Street Journal from each week 79 years ago.
One bullish article from June 1930 made the following point:

"Historically there has been no case in this country since 1900 when business failed to turn upward the year following a depression."

The implication was that, since the depression was over, as almost everybody thought at the time, business was bound to do better sooner or later. A 3-year depression was not even considered a possibility.

June 16, 2009

Line in the Sand

The market is in correction mode, that is now a fact. How low can it go before this ceases to be a correction and turns into something more ominous?

I think the 875 level on the S&P500 (shown in the chart above-click to enlarge-in orange) is extremely important for the very simple reason that it has proved to be quite a formidable resistance on the way up. Indeed, four attempts were needed to break out of it: on January 28, February 9, April 17 and, finally, success in early May. It then acted as support when the market wavered in mid-May.

So any decisive move below 875 should have us legitimately make arrangements for a proper burial of the bull move off the 666 low.

June 13, 2009

Yes It Is a Big Deal

Not to pick on Michael Santoli - because he's one of the more perceptive guys on the Barron's editorial staff - but he's been a pretty reliable contrarian indicator for the past year or so.
His latest column, wondering "Is Big Runup That Big a Deal?", should therefore be added to the bearish side of the sentiment ledger.

If, as we stay range-bound, more and more people come out of the woodwork and declare the 40% bull move we've had since March "not a big deal", "absolutely normal", "a prelude to things to come" or words to that effect, the odds of the market breaking down rather than out will increase markedly.

June 8, 2009

Bush v. Gore and the Great Recession

Two days after Bill Fleckenstein's misguided rant about Paul Krugman and as if to indirectly respond to and successfully demolish it (the rant), the latter produced a great column in today's New York Times.

Krugman basically tells us that, would Bush v. Gore have gone the other way in 2000, a lot of things would assuredly have been different but probably not the financial crisis. The seeds for the Great Recession of 2008 were already planted. The Democrats would've been blamed for it instead of the Republicans, that's all. Case in point: the UK, where the labor party in power the past 10 years embraced deregulation just as lovingly as the Democrats under Clinton and the Republicans under Bush and is now getting blamed big time by the British electorate. The Tories are almost assured to return to power in the back of an unprecedented wave of discontent, a prospect Paul Krugman finds appalling, but that's another story.

June 4, 2009

Rant

I was at the gym today and heard CNBC's Larry Kudlow berate a guy for basically saying "be careful, this market has gone too far too fast". First of all, when did Kudlow get a hair transplant? (If the Zero Hedge blog can cruelly make fun of a hapless "Latina woman"'s hair coloring, I can do the same for an equally hapless "white male man"'s mane). Second of all, Larry Kudlow's foaming at the mouth, going on and on about the "reflation trade" and the "China trade", and insulting anybody clueless and/or stupid enough not to be long the market, makes me want to tighten the stops on all my longs.

June 2, 2009

Google Ads: They Feel Your Pain

It used to be that the Google ads shown on my blog were all market-related. These days? "Overcome Panic Disorder", "Overcome Anxiety Forever", "Top Anxiety Treatments", etc... You get the idea.

Does it mean the Google bots picked up on the behavioral finance slant of my most recent posts? Or does it mean "do no evil" Google has actually found a way to infer a blogger's state of mind from his or her writing? Or weirder still, the state of mind of a blog's readers? 

Now, if I try and tune out the paranoid part of my brain, I can come up with a more rational explanation like maybe selling anxiety remedies on the internet is a better business proposition these days than selling trading methods but just because it's the more rational explanation does absolutely not mean it's THE explanation.