Monday, July 26, 2010
The image at the top of this post is the front page of Sunday's New York Times. At the lower left you will find a story about a hedge fund that apparently has "cornered" the cocoa market. In other words, the fund has bought so much cocoa that any further buying by anyone, in particular by shorts wanting to cover their positions, will send the price way up.
This is the sort of bullish story that you will find when a market is trading at or near its historical high point. Cocoa is in this case no exception to this rule. The monthly bar chart above shows the last 15 years of trading in cocoa futures and indeed the market is trading only a little below its historical high point.
The market cynic might ask why a hedge fund would want it known that it holds an enormous long position in a market and has it cornered. My answer is that that fund wants to sell its position. It wants to scare the shorts into covering and encourage new long positions by people who think this "corner" will push the market much higher.
I conclude that cocoa prices will be a lot lower 12 months from now.
Monday, July 19, 2010
Here is the latest from weekend editions of The New York Times and the Chicago Tribune. I think these items are more evidence (as if we needed any) of the generally bearish views of the investing public.
The image immediately above this post is the front page of Saturday's Times. Stock market volatility is mentioned in the sub-head. In the story itself the recent stock market drop is offered as one explanation for rich people becoming more frugal. As headlines go this one is not a particularly strong indicator of bearish sentiment on a stand-alone basis. But in the context of the bearish drumbeat of the past two months it serves to reinforce my conclusion that bearish sentiment is still strong - not surprising since the low was made less than three weeks ago.
The middle item is the first part of a story in the business section of yesterday's Sunday Times. Jeremy Siegel, a long term stock market bull, was interviewed about his market prognosis. What I find interesting about the headline is the suggestion that "heading for the hills" is the natural investor reaction to the recent market drop.
Finally, the image at the top of this post comes from the business section in the Sunday edition of the Chicago Tribune. Such a strong reaction to Friday's drop is again evidence that a strong bearish crowd has developed over the past three months.
All in all I think that the bearish sentiment is strong enough to support an advance in the S&P 500 to the 1300 level and above over the next 8 months.
Monday, July 12, 2010
The image immediately above this text appears on page 1 of today's Wall Street Journal. The graph within this clipping depicts the net weekly inflows into mutual funds which invest in the U.S. stock market. The latest downward red spike in this graph shows a greater outflow than in any week since the bear market ended in March 2009. One can infer from these data that small investors are quite pessimistic about the prospects for the U.S. stock market.
The chart at the top of this post comes courtesy of StockCharts.com. It shows the results of the weekly investors survey conducted by the American Association of Individual Investors. The latest reading shows the greatest percentage of bearish opinions since the March 2009 low.
These data show that the actions and expectations of small investors are in sync to the bearish side. The extent of bearishness is comparable to that seen at the March 2009 low point. I can only conclude that the bull market that began then is still underway and that the S&P has started an advance that will take it well above the 1300 level.
Tuesday, July 6, 2010
In the Business section of the July 4, Sunday New York Times there were two profiles of prominent market and economic pessimists.
Rogoff and Reinhart are two economists who collaborated on a book "This Time is Different" which recounts the history of financial crises over the past 800 years. Judging from their public statements they think that the consequences of the 2008-09 financial crisis will be serious and long lasting. The Times profiled them on the front page of the business section.
The fellow whose picture is at the top of this post needs no introduction. He is Robert Prechter of the Elliott Wave Theorist. He has been a vocal, long term bear on the world stock markets and the world economy for years. This story appeared inside the business section.
I think one can infer from this that the NYT business section editors believed that the thoughts of two prominent bears on the economy would be of interest to its readers on July 4. The media are in the business of telling people what they want to hear. So I take these two stories as more evidence highlighting the strength of a bearish investment crowd which has grown quickly during the current 15% drop in the averages. I think the next big move in stock prices from current levels will be upward.