6 SIGNS OF CAPITULATION?
In his most recent research note, David Rosenberg says we have likely seen short-term capitulation within a secular bear market. But make no mistake – this doesn’t mean we are entering a new secular bull. This is merely another minor dead cat bounce within the larger bear market. He notes 6 reasons to expect further upside:
“1) The USA Today consensus showed that strategists have cut their year-end S&P 500 target by 8%.
2) Wall Street economists are at 40% recession odds, which means if the heads of research allowed them to really say what the probability was it would be 80%.
3) Bank of America let its chief equity strategist go who was calling for 1,450 on the S&P 500 and the most bullish seer of out there (we wish him well).
4) The AAII investor sentiment suvey shows 30.2% bulls and 40.3% bears.
5) The Investors Intelligence survey also did a switcheroo, with the bull camp in the past week down 3.2% to 35.5% and the bear share rising the same amount to 40.9%. That is the largest number of bears since March 2009 (was 21.5% at the July market peak). And we have the fewest bulls since the August 2010 retest of the lows back then. The “spread” is now -5.4% between bulls and bears, well off the +28% gap at the July market peak.
6) Short interest on the NYSE and Nasdaq surged nearly 4% in the second half of August; these positions are now being squeezed, which is the “buying support” the market has been experiencing in the low volume rally of the past few sessions.
Remember, it is not at all unusual to see the stock market enjoy a relief rally after the initial 20% leg down in a cyclical bear market.”
Source: Gluskin Sheff
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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28 Comments
The bounce was in march 2009 lmao
Markets exist to frustrate the maximum number of participants. While many blue chips are undeniably cheap, I’d like to see the S&P close above its 12 month moving average in 2 weeks to affirm a new leg up. 4 up days does not a bull market make.
The bear market and depression are not complete until CNBC is reprogrammed into the “Survival Channel”.
I agree with McCoy that the intermediate trend remains down until the S & P moves above its 12 month moving average. This short term rally could turn down as sharply as it turned up. The intermediate trend is your friend, don’t lose sight of the big picture. The can has been kicked down the road again, but the same solvency problems remain unsolved.
A look at the Qs would indicate not much more than a hiccup. A look at tsys the complete opposite. Yes, very interesting times. I think it means that people aren’t going to do without their electonic toys, just like they won’t do without gasoline. So if you must be long, that’s probably the space to be. Other than that, I think the Qs, and just about everything else, are climbing into an area they have no business being in. I’m still looking short. Of course, Europe may fix the euro and congress could pass some beneficial spending bill or embrace MMT. Nah, I’m looking short.
SPX rally yesterday tends to rally today with triple witch experation..(someone tell market)…the rest of the month SUCKS for stocks typically.
An average decline after today of 3% going back 10 years. We closed OUT SPY TODAY.
Still hold Emerging Markets trade put on 9/6. this trade is like our policy makers…it’s hasn’t done anything.
Keep in mind..from 9/23 ish the month has been up but next week historically has been poor. (Michigan never losses to Applachain st. at the big house…that’s why they play the game..who knows)
I disagree with Rosie here….I pay for his subscription and think highly of him and his daily missives. BUT using his info. to trade off of will land you in the poor house. Macro-brilliant..but like Ray..Macro-genious..application to make money in that year. Rosie may take 2 years to pull off the same feat.
Heres why:
The first countertredn rally in a bear market-to an early”denial” phase where the first down leg elicited som professional concern but has yet to completely dash long-term bullish views…in this denial phase it is common to interpret the decline as a fortuitous opportunity to by the ongoing bull market….NOT as a change inlong-term trading patterns…which is what I see.
Also your seeing optimism of the faith of global central banks to stem the deflainary tied. Which as Cullen has pointed out…YOU CAN’T STOP A BALANCE SHEET RECESSION whith these policies”. These fools arn’t even reading the right manual to understand..”THE MACHINE”.
IIS, Corporate Credit spreads, NYSE Margin Debt and AAII Survey all poin to decent short term extremes. But I’m closing my postion out regardless…I will look to come back in end Sept. Short Term trades..are not to be kept another day. I hate late fees.
We have some charts and this isn’t the capitulation long term I’m looking for to sustain a bull rally. Not my opinion. Rosie is always early and rarely good at short term trades…I hope he doesn’t prove me wrong today.
Great job on the SPY play.
While I don’t have your technical analysis and statistics prowess, I’ve put a bear spread expiring next 20th of October on the theory that the market is pretty much discounting that we’ll have smooth sailing in EFSF and bailout votes. Everyone knows QE3 is a done deal so I don’t think markets will rally next week.
Also, lately we have had a pattern in which the market goes up 3-5% and then falls 4-5% to then reverse and go up 3-5%. From last’s week SPX we’re up almost 5%(using yesterday’s close). Considering my pretty much non existent expertise in the field of technical analysis, I just a spread that won’t hurt that much if nothing happens.
Looking to buy some call options if the SPX falls below 1150(even better 1140).
+1 vote for an editing button.
Maybe I am just reading him wrong, but I don’t see you and Rosie so far apart. He sees a short term bounce in a cyclical bear. I don’t think he suggests trading off of it, because the risk reward is bad. I think he is just letting people know not to start increasing risk because the market runs a bit here. My impression is he believes people should reduce risk on any rally.
Or, maybe I read him that way because it is how I see things. Confirmation bias and all that.
http://riskandreturn.net/index.php/2011/09/06/the-view-from-the-bluff-go-long-the-real-and-important-short-the-artificial-and-stupid/
Lance-
On Barry Ritholtz site yesterday(going there now to get quote…)he tells a story about Ray Dalio after he spoke on Bloomberg….
Ray says,
” Isn’t that what it is all about? If you don’t understand yourself, how can you ever meet your goals, in life or in investing?”
I like that line by Ray and hope I figure out what I’m about before you do.
But thanks Lance sometimes I’m totally clueless about myself until my wife looks at me and I try and blame my fart on my 6 month son.
YO…TPC
Thanks Cullen for another week.
To those in the bunker. please come out we need you more than ever. This country has alot of work..and we need everyone to help. Solutions and actions. The guys and girls who made us great deserve for us to do all we can to get back to what they thought we could be! Not to relish in how great we were like some old high school football palyer
Goining to pick up my son and go play..have a good weekend Cullen.
MEDIOCRITAS- I’ve been thinking of you…know you got a little one coming in soon.
Thank You DC.
Bought sds @22.45. Put a stop @22.30 under half of it and bought spy 123 calls to cover the rest. About 1.25% at risk. Lots of air under this trade.
I have to ask..
Anybody touching RIMM?
I know only a little about RIMM. I’m still a child of the great tech bust and avoid most tech in individual stocks. But I like buying things I can resell.
Anybody….
From technical standpoint they are doomed. Too far behind.
The best thing to happen to them is someone to buy them and overpay.
I think they are going in the single digit range in the next 2 years.
Google Nortel….another Canadian innovator that ended up being sold for patent value, a more recent example North of the border is Yellow Pages TSE:YLO. Used to be a stalwart with an incredible yield. Now it’s only the best short in my portfolio.
Some guys just don’t know when to get out when the getting is good. I agree at best they will be a takeout because their only real foot hold has been business use which is quickly being taken over by the big guns.
Co management….yes, ‘Co’ has only recently split as the CEO chair was shared. Unfortunately two heads seem to have consistently not been able to come up with good decisions for the past 2-4 years. They both have lost about 2/3 of their wealth which was almost completely tied to their company.
Major shareholders have been jumping out like lemmings, looking for blood at shareholder meetings, and publicly calling out management for three rounds of disappointing earnings now and it looks like it’s going to happen yet again.
In short, RIM has been a gong show for far too long. A comeback vs. Apple will be very hard to mount.
Its been on my radar for a while now. Haven’t pulled the trigger yet though, for a number of reasons. If I do it’ll be through deep otm leaps.
Looks like your algo was right again Cullen. You missed some big gains by ignoring it. I didn’t.
Thanks for rubbing that in my face.
I understood the risk when I made the decisions. I thought the situation was a coin flip that could go either way. I should have known better. In this day of bailouts they’ll do anything to avoid collapse. Oh well. There’s worse things in life than having an algorithm that predicts where the market is headed. And I just remembered, one of those worse things is ignoring it! 
Is it still on? Its been 5 or 6 weeks.
Yes, still on a buy.
At the time of your call to not buy it was the right decision from a risk management point of view, period.
I don’t think we were looking at even fifty fifty when you printed that. Even CNBC couldn’t find a bull that day….mind you, perhaps that should have been a sign. lol.
I miss trades all the time. Doesn’t matter. Stay in your comfort zone and make sure what you do is right.
Michael- well said.
I just finished Rosies piece. An Excellant one..I know little about reprint policies except..don’t do it.
But he says Ben wrote in 2003 how he likes to target stocks in a way that surprises the market to the upside. Then he gives several examples of the market rallying big time after he speaks. But in order to do this Ben needs to pull out a surprise the market doesn’t expect..besides “the twist”. He then lists several things that he could do to surprise the market and cause a huge rally. Also noting the huge rally on August 9th as example is no higher today than then. So he’s saying no ones short ahead of the meeting and if ben follows his playbook, he will surprise..then market rally on Wednesday. BUT he does say if Ben does nothing…then you could see that ugly girl from 5th grade again(my line not his)
He gives 6 things that he could announce.
Great..another decision to make on Tuesday. Cullen can I borrow your coin.
It’s a challenging environment to say the least. But thanks for the heads up, VII. I haven’t held a trade for more than 3 days in a while. Either they make money fast or I’m gone. Looks like I’ll be gone Tuesday!
RIMM is dead. From a financial standpoint they’re doing ok, but the problem is that their phones aren’t that good.
1. Right now Androids and Iphones offer far better value for money. More apps, better aesthetics, more variety, better interface etc. In the high end mobile phone market you better have a WOW phone and must have applications, and RIMM has OK phones, not WOW phones. The only *must have* application is blackberry messenger.
2. They’ve been pushed into the middle and low range in developing markets as they can no longer compete in the high end. This hurts their profit margins. But there’s also a problem: there’re rummours of a middle range iphone coming soon in October and even if this new iphone doesn’t come, the iphone 4 will get a lot cheaper. Moreover, there’s plenty of middle range Android in and coming into the market. One example that comes to mind is the Xiaomi, prices at 310 USD and with some pretty impressive stats that can beat the stats of high end phones.
3. Why would anyone choose a Blackberry? Security and BB messenger. BB is as of right now the most secure mobile platform, so many businesses and governments require that they employees use BBs. But here’s the thing: Many employees would ditch the BB for an Iphone or Android if they could. As Iphone and Android get better at security, I expect BBs to lose their security advantage.
4. RIMM is releasing a new operating system called QNX sometime next year. In theory is better(Not sure why, just being marketed as better), and will be to run android applications(For not technical people this is a very good thing). Problem: It’s incompatible with their current operating system, Blackberry 7 -released this year, so you can be sure that next year they’ll pull the plug to BB7. Question: If you want to buy a 500-700 USD mobile phone right now and you know that they phone you’re going to buy will stop being supported next year, would you buy it? I don’t think so.
5. The management has proven itself to know about profit margins, but has no clue about making phones that can compete in the current environment. They’ve been very arrogantly understimated the challenge from Apple and Google and they’ve paid or it.
Conclusion: These guys are dead, unless they get taken over. Problem: Who will take this over? I’ve heard Microsoft or Nokia, but to be honest that sounds very far fetched.
Perhaps Rosenberg tries to strike a positive note.