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.
Good one. All I read is bearish prognostications of Dow 7000-7500 by yearend. I HOPE NOT. If so it will be the first time in history the crowd has been right ! This will change everything with regard to investing...
ReplyDeleteHi Carl,
ReplyDeleteI Brought your book "The Art of Contrarian Trading". I finished reading until Media dairy. Before reading your book recent rally in dow exactly reflects contrarian move. I still think book should contain some Quant atleast. It is very analytical that is very good. But Little Quant would be great. Only qaunt in the historical price adn time frame. Maybe adding increase in frequency of messages would be great. It is mentioned in the book But does not suggest that how much increase. Overall it is a great book. I would refine few things before adopting it. BTW I have started my Media Dairy yesterday in Excel!
Hi Carl,
ReplyDeleteI'm reading your book at present and have covered the contratrian strategies and I need some clarification when the SP500 is below the 50 day Moving average. An agressive strategy as you call it.
During this April sell off till now the SP500 has closed by more then 5% below the 50 day moving average. Approx date 2nd of July 2010.
Would this not be classified as Bearish immediately? I'm seeking clarification on how you do this mechanical.
How many times do you wait to confirm that one needs to act on being bearish if this was one of those occassions.
What makes this so difficult is that this market has risen 85% since the March lows but has has taken less then 20 months also in time.
I find this market juncture not soo easy!
Regards
Serg
Yes, Serg, the S&P 500 did close more that 5% below the 50 day moving average. But as I pointed out on this blog,I thought that the market was at the same time a buy for the aggressive contrarian, at least for a play for a move to a lower top. So if you disagree with my bull market stance, you could sell an aggressive long position on a close by the S&P 500 which is 1% above the 50 day moving average. This happened Friday, so if you believe this is a bear market you should have reduced your position to below average or completely out.
ReplyDeleteHowever, I am betting that this is a bull market so I am staying with my longs.
Remember, this is the "art" of contrarian trading. It is not a mechanical method for getting rich!
Many thanks Carl for helping me out. This is what is confusing me; looking at the mechanical method (5% below the 50 day MA) as it has happened 3 times already since April & the the art of interpreting the diary/media itself right now.
ReplyDeleteJust that you know my day to day job is a design engineer so I am always looking at mechanical methods to best deploy a solution, so my natural instict is indeed mechanical.
Side note: I can see you don't mark around, straight to the point! I appreciate that too. My wife is Dutch and she tells me how it it :) - Shes a blessing to me!
OK back to the market.
What is so hard for me at this stage is the interpretation of the context of the market right now since April.
Perhaps the extreme pessimism back in March would be easier on one hand to interpret (If one has the experience), but very very hard for people like myself who has to be in complete control of my emotions and seeing the great buying opportunity back then.
I have read your last articles and indeed you are still bullish. I have a weighting on the downside at this point in time as I have a long term put (LEAP) but feeling nervous as its moving against me on a day to day basis.
I look forward in learning more, from an experienced and a real contratrian like yourself.
One final question reg the Mechanical 5% below the 50 MA, what if it were to occur again in the coming week/weeks or so would you change your stance?
So that I can learn better; was back in March 09 a buy immediately when 5% was above the 50 day moving average as an aggressive contratrian on the first instance or when it happened multiple times? See when I am coming from?
Thanks a million & for sharing.
Regards
Serg