Familiar Chart Pattern

Long time readers might recognize this chart I use in my technical study as this is what stocks did on Tuesday.

I had a post on RealMoney yesterday in which I said that the panic is over but that the event is not. The market then got whacked. I tend to think that the panic is in fact over and what is happening now is the discounting of how serious this will or will not be.

I mentioned over the weekend that no more selling made no sense to me. That such a big threat could resolve itself in a couple of weeks just seemed wrong, still does.

Based on a couple of the comments yesterday the panic may NOT be over. This is subjective of course but I think the panic of early August was the discovery of the problem. Now that it has been discovered it needs to resolve over time.

Generally speaking I have thought the worst case scenario from this would be a normal bear market and while I have been less vocal about a normal recession this wouldn’t be shocking either.

Regarding the Bespoke table from yesterday a reader asked “How do you time your over weighting or under weighting of a sector? Why do you think it is reasonable to time sectors, but not time the market?”

It depends how you use the word time. As a means of short term trading I don’t think it is ideal for managing other people’s money (this is my perception only and I am not saying what other people should do) and I am not that good at it. In terms of following the economic and stock market cycle, recognizing when sector weights seem to be out of balance–these are very long term things. I have had roughly the same underweight in financials for several years. When the yield curve normalizes I will be closer to equal weight. Is that timing? In a way yes and in a way no.

My focus in the regard involves infrequent need for big change, trying to add value if possible and smooth out the ride a little. This is right for me, it is ok if it is not right for you.

Another reader asks “Why am I in this market when a risk free internet bank pays 5.5%????”

When do you need to use the money? In that time frame what do you expect will be the better hold; a diversified portfolio or a money market. Whatever you answer is what you should own. If you want stocks you need to realize that at this point the market is well within down a little.

Yet another question asks “do you get more bearish as we cross below the 200 dma for a second time?”

I don’t think of it that way, but maybe I should. Right now the portfolio is behaving as I hoped. Generally accounts are going down a little less than the market so as we grind around in this same area I don’t see a need to add more double short (this can change at any time). The real thing here, and I think most clients get it, is trying to use the tools to try to protect against down a lot. It is helping out for now but time will tell what I do next; I will share whatever that is.

And because Adam asked, Boomah! Speaking of Adam, read this if you have not already done so.

12 Comments

  1. so help me, I definitely had that card as a kid. Boomah!

    Reply
  2. The man who first coined the phrase “tater” when describing home runs.

    Reply
  3. Panic ???

    How about people are too complacent IMO. Yes I know some people leave a panic message as you quoted, but look at Citigroup panic/euphoria model at
    http://tinyurl.com/3agq7g

    If you have been following for years you would know it has been staying between 0 and -0.9

    Euphoria has really been around 0

    All the talk of panic and this sentiment indicator suggests a LOT of complacency to me.

    Reply
  4. I can get on board with your idea but something has never seemed quite right with that specific indicator. I have no science to back that up and I may be wrong.

    Reply
  5. Not science, but I have found the Citigroup panic/euphoria model to be at a high (near zero) at market tops and to be significantly lower at market lows from my following this and other sentiment indicators since it has been published in Barron’s.

    I have no personal experience with this indicator prior to being published in Barron’s, but I did read some where that it was above 0.6 during the Nasdaq bubble.

    I would also say that many readers of your blog seem to be stay the course during this market turmoil.

    I do not see a panic. I see complacency or buy the dip mentality from many people. Although I do expect that to change before this is all over.

    Reply
  6. How long do you think it will take until everybody is a ware of the problem with SIVs? SIVs are off balance sheet investment vehicles for most banks (I wonder if this is where Enron got the idea?)

    here is one article about a recent SIV problem http://tinyurl.com/2vmz5w

    Do you really think all this debt unwinding is going to go smoothly?

    Reply
  7. BTW, I am rather optimistic about the future even if I think the market will see a significant decline. If you really want to read some cautiuos outlook from a well respected economist, Christopher Wood, in his Greed & Fear newsletter. Got to ftalphaville at the link below

    http://tinyurl.com/3xfxn5

    I really do think this will not be fun for most of us.

    Reply
  8. Roger,

    Is there a CEF that focuses on companies of developed countries who market heavily to the undeveloped countries?

    re the panic/eurphoira indicator, tobias l. weaves some cool data but ultimately his data comes off like greenspan speak. This is an assessment conveyed to me by someone who was close to him. No matter, I do believe his intentions are good.

    Reply
  9. i am not aware of a CEF that does what you ask. I would try some sort of reverse search with either of the big earth moving equipment makers or soap/toothpaste companies to see what funds own them and go from there.

    as i say that i don’t really know what site would accomodate such a search but…

    Reply
  10. Roger-

    Off topic, but current…

    Much is being made of Bank of America’s Kenneth Lewis as preventing a bigger crisis by investing heavily in Countrywide to “stem the tide”. I thought I had seen recently that Warren Buffet was involved with B of A, had taken a look at Countrywide, and had met with Lewis just before the bailout was announced. Did WB play a role indirectly inn making it happen?

    Tom

    Reply
  11. i thought i heard something along those lines but i am sorry i do not know any specifics.

    Reply
  12. I’m sure that BAC is one of the creditors on CFC’s $11B drawdown just prior to the bailout. That’s not to say that KL and WB didn’t have a conversation. KL is probably positioning to protect his bacon.

    Regarding the level of panic. I’m still waiting for the other shoe to drop–and perhaps the level of panic helped get the market warmed up for that shoe to drop.

    Q3 earnings ought to be watched carefully–particularly changes in equity, as I believe there is a FAS that allows folks to take gains/losses on investment vehicles as a change in equity rather than a charge to earnings (makes me bristle!).

    I personally worry, largely because I do not understand it so well, is the quality of the CDS’s used to protect against credit risk. ARe these credit default swaps held by liquid players. I have to believe that some of them, particularly hedge funds, are not so liquid.

    Reply

Submit a Comment

Your email address will not be published.

WP-SpamFree by Pole Position Marketing

Familiar Chart Pattern

Long time readers might recognize this chart I use in my technical study as this is what stocks did on Tuesday.

I had a post on RealMoney yesterday in which I said that the panic is over but that the event is not. The market then got whacked. I tend to think that the panic is in fact over and what is happening now is the discounting of how serious this will or will not be.

I mentioned over the weekend that no more selling made no sense to me. That such a big threat could resolve itself in a couple of weeks just seemed wrong, still does.

Based on a couple of the comments yesterday the panic may NOT be over. This is subjective of course but I think the panic of early August was the discovery of the problem. Now that it has been discovered it needs to resolve over time.

Generally speaking I have thought the worst case scenario from this would be a normal bear market and while I have been less vocal about a normal recession this wouldn’t be shocking either.

Regarding the Bespoke table from yesterday a reader asked “How do you time your over weighting or under weighting of a sector? Why do you think it is reasonable to time sectors, but not time the market?”

It depends how you use the word time. As a means of short term trading I don’t think it is ideal for managing other people’s money (this is my perception only and I am not saying what other people should do) and I am not that good at it. In terms of following the economic and stock market cycle, recognizing when sector weights seem to be out of balance–these are very long term things. I have had roughly the same underweight in financials for several years. When the yield curve normalizes I will be closer to equal weight. Is that timing? In a way yes and in a way no.

My focus in the regard involves infrequent need for big change, trying to add value if possible and smooth out the ride a little. This is right for me, it is ok if it is not right for you.

Another reader asks “Why am I in this market when a risk free internet bank pays 5.5%????”

When do you need to use the money? In that time frame what do you expect will be the better hold; a diversified portfolio or a money market. Whatever you answer is what you should own. If you want stocks you need to realize that at this point the market is well within down a little.

Yet another question asks “do you get more bearish as we cross below the 200 dma for a second time?”

I don’t think of it that way, but maybe I should. Right now the portfolio is behaving as I hoped. Generally accounts are going down a little less than the market so as we grind around in this same area I don’t see a need to add more double short (this can change at any time). The real thing here, and I think most clients get it, is trying to use the tools to try to protect against down a lot. It is helping out for now but time will tell what I do next; I will share whatever that is.

And because Adam asked, Boomah! Speaking of Adam, read this if you have not already done so.

Submit a Comment

Your email address will not be published.

WP-SpamFree by Pole Position Marketing