PAVLOV’S BULLS
25 January 2011 by Cullen Roche
18 Comments
The latest quarterly letter from Jeremy Grantham. As always, a must read:
Source: GMO
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Comments
Good stuff. Thanks Cullen
Today was brutal for the bears. Another last second stick save. This market is never going down….
The volume at 2.55-3.20pm was truly impressive! Just when it looked like the market was about to really roll over, boom the Dow was break even in a blink. Hard to beat that game!
Almost a 1% rally in SP in final hour. You have to be VERY selectively short in this market. You’re obviously fighting forces bigger than any of us….
It’s sad, the very few shorts left standing are bruised and throwing in the towel. Of course that’s when you want to be getting short………….but we’ve heard that one a few times already.
Selective shorts on AUD, Oil, Copper were on since middle of last week. Sold the longs on SP during the 2nd week of January. We are in a rotation – distribution phase. Late phase of the bull run. I mean for a correction. We will top (new or double-top) by the end of this month.
Just updated my models. I am actually getting a short signal for the first time since Oct 28th. I have to admit that my gut tells me it’s a bad idea, but the accuracy of this model I’ve generated has been pretty incredible. I will likely be implementing equity shorts into the end of this week….
Cullen,
Listen to Jim Simons, trust your models!
Cheers
Yes, I don’t really question it. Trade like a robot is my motto.
TPC,
SP500 as a hole looks strong. But if you look and the different sub-indexes (sectors), it tells another story. Take a look at last April top on the SP500, and the pattern of the sectorial indexes the two weeks before.
Yes, if the market breaks the negative divergence between big caps and small caps will become exaggerated.
Tom DeMark approves this message.
That surprised by the last hour rally? Pull up candlesticks at the Jun 09, Jan 10 and Apr 10 tops with candlesticks on stock charts.com with a 60 min view – identical to we’ve seen over the past week…massive day to day and intra day volatility as we thrash up and down and volume picks up. Classic distribution top. There is no manipulation just totally tradable swings as you wait for the top to short. Looking for 1295-1305 to put a big snort line out, first time since Jul. We will see if the market ratifies that but would think the top is a mere day or two away…
Trust me, dip buying NEVER surprises me these days….
i think not only theoretically, but practically a market CAN be manipulated for a very extended period of time until all bears become Pavlov’s bulls.
That’s essentially what JG is saying. He says we go to 1500, a bubble is formed and it collapses. That sounds pretty accurate to me.
“my gut tells me it’s a bad idea”
That makes perfect sense, the very big trades are the most difficult “emotionally” to pull off. When people are itching to buy it’s typically to late and when you’re frightened to buy, it’s the bottom. Same theory in reverse for a top.
Going back to the GMO letter, many thanks for the great reading. I do not have the guts to “surf” bubbles once I am aware the fundamentals don’t back the action. For example, Grantham believes the SP500 will rally hard up until at least October. The only way I can think a chicken like me could capture some of the upside is buying SPX/SPY calls preferably waiting for a correction before doing so. My tendency with options is to buy LEAPS as I am always worried about how quickly time erodes the value of options. However, since option trading is one of the best ways to loose money perhaps I should stay on the sidelines??? Any thoughts would be greatly appreciated.