TWO VOLATILITY CHARTS POINT TO A BULLISH ENTRY POINT
I’ve been posting an abundance of bearish material lately so I thought I’d lighten the mood a bit with something that is pretty bullish. Current levels of volatility are consistent with very bearish longer-term psychological points. Historically, these sorts of readings have been bullish as the market’s participants are poorly positioned for any potential upside surprise. The following two charts provide from insights. The first is via Charles Schwab and Sentiment Trader:
“The final technical chart brings in volatility. On Friday, the market experienced the 17th time in the past three months that the S&P 500 SPY (exchange-traded fund trading the S&P 500) gapped by more than +/- 1% at the open and then didn’t close that gap during the day. This means that the S&P didn’t reverse enough to “kiss” the previous day’s close. As you can see in the chart below, this level of “unclosed gap” behavior has been seen only four other times since the early-1990s. All occurred while the market was forming a major bottom.”
The second chart shows the 2 month moving average for the VIX. Current readings (pardon the 24 hour old chart) are consistent with buying points on a 24 month basis. Granted, there are only three data points in the last 20 years, but the readings are consistent with high pessimism which tends to be consistent with being closer to a market bottom than top. Additionally, this is only one of many indicators that the modern day investor should track. Nonetheless, it’s worth keeping in your tool belt. Now, I can’t say that I am eating the cooking here because I still abide by my balance sheet recession trading approach, but it’s food for thought for the longer-term investor….As Warren Buffett says – be greedy when others are fearful. There’s little doubt that others are fearful…..
Source: Schwab
Who cares.
I’m done. I am outta here. After I visit the forums, that is.
The recently posted AAII bull/bear data wouldn’t tend to back up the “lots of fear about theory”.
From what I see about there’s very little genuine fear – more an orderly repositioning which seems to be very much discounting a Euro solution. It might just be me but the AAII data is almost surreal given what’s going on in the world. Perhaps we just assume everything will be bailed out these days?
I see complacency and apathy, not fear, and people are worn out. We’re living in a bailout world, and that has to play itself out over time. In the short term, we’re circling back to debt is good. Volatility and market timing to continue.
The tape continues very bullish. Think of all the stories/bad news that has been thrown at this market on a continual basis for over a year. My guess–if we are going down it will have to look like 87 or we are going up to test the all time highs. I lean to a test of the highs. In 30 years I have never seen a market withstand such a stream of pundits telling us why the world we know is ending. I’ll believe it when I see it.
I agree. The market has had a flooe undet it which cannot be breached. I believe some of this is foreign buyers looking for a safe haven return avove debt yields. Most of it is the worlds central banker…no matter how awful the debt overhang you simply dont fight the fed.
Heh TPC,
“…this is only one of many indicators that the modern day investor should track. …keeping in your tool belt. … can’t say that I am eating the cooking here because I still abide by my balance sheet recession trading approach…”
You’ve previously talked about various tools in any investing approach, but in terms of what you are eating, i.e. your timing model … what is your specific philosophy there … e.g. would you characterize your thinking as something like …
macro(economic) 50%
technical 10%
financial/fundamental valuation (i.e. marketcap/GDP) 20%
quantitative (momentum/trend, mean reversion) 20%
Or is it totally dynamic … your model in 2011 is totally different than what it was in 2008?
Thanks. (Heh, it’s nice to have a break from talking Greece and MMT!)
Woke up this morning with the same thoughts on bullish sentiment, but I’m wondering when the ECRI call for another Recession back in Sep will start to manifest itself.
Might as well come clean…..we bought 40% spy Monday at the close…sold some currency stuff at the open yesterday and bought 10% more into SPY at 121.
This isn’t complicated…..November and thanksgiving r good windows…I see the surveys also and they don’t seem overly bearish compared to what I’m reading…and seeing in the real world. My clients r taking 2-5% withdrawals right now..property taxes, holiday, helping family members…it’s tight out there. I say this based on my dailycalls with my clients…some r eating into portfolios to live. Actually it is almost many.
We see two totally binary outcomes here…either it breaks up over 1300(1320) or it totally breaks down below1150. So At 1210 we find the ” potential” to bounce. LORD I have no clue. I must admit that. But we bought.
And that folks is the market. I can make two different arguments here about why it should go lower or why it should go up…I have a third option of staying out. I chose to buy…my job is to preserve capital…but my job is to make money. The confusing signals always make me not want to be wrong for fear my clients will think I’m not good enough. That emotion that pops up for me…always tells me to do the opposite. So I did
I’ve been frustrated when I read an investor put out a report that recommends buying because of Santa, turkeys, and toothfairies.
I’m not recommending u do anything. I get turkey and Santa rallies….but I’m saying I bought but I have no clue what the outcome will be. I’m still bearish. If your going to site a turkey or Santa rally …just be honest like I did and say u have no clue.
Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,
It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator…but there was no possible way to continue given the inevitability of the collapse of the global financial markets, the overthrow of our government, and the resulting collapse in the rule of law. – Ann Barnhardt
This is an absolutely stunning letter…and a must read from one end to the other. I would also recommend that you distribute this article far and wide. The letter is posted over at zerohedge.com…and I thank reader Matthew Nel for being the first of many who sent me this piece. The link is here….and the link to he original letter posted at her website is here.
I read that they have 4 employees. That’s like me saying I am leaving the equity markets because I lost a bunch of money because of some other fraud. Who cares. You lost. You knew the game was rigged. We all know there isn’t enough oversight. It’s not like this is some secret. You have to be more understanding of risk management than ever in this environment. These people sound like they’re whining and making a political argument more than anything else. They lost. Forget them and their political rant. It’s meaningless. But I am sure it drummed up a lot of attention through fear mongering. Disgusting if you ask me.
totally agree with CR. Lots of managers have been giving it up recently; that is not our problem, but theirs. They couldn’t cut it.
Anyway, I have just bought sp eminis here at 1215.4, 100 lot. This is a 20% position. Will add as(if) we go up. Stop at the day’s lows.
Just looked at this Ann character’s pics. Looks to be some Sarah Palinesque “Obama is a Hitlerian Marxist” pig slopping teaparty member. Just because she knows about cattle futures doesn’t make her a market expert in my book. Just another loser who finds it easier to blame everyone else instead of her own shortcomings.
@ Wayne—buy more..tell your friends I’ll punch their e-mini cards and after 100 buys I’ll give them a free car wash. Me and my clients need all the e-minis we can get.
See you guys…and the lovely Plain Jane, Trixie…have a nice weekend Cullen.
ha, hey VII. Will do so but only if it goes up. I only add to a position when I’m winning. If I stop out, I will try again. I believe it is too risky to short here which is why I prefer holding cash and picking a bottom.
Have a good one.
100 lot of e-minis?
Oh boy, are you rich? Are you sure you did that? You know, e-mini is not a stock, it is a futures contract.
lol
ughhh did you see my rants yesterday on this?….Go to Bullish Sentiment Remains Elevated posting on TPC.
She’s a hack. Yes Corzines a Dick. But look If I’m a hack are you going to side with me cause I attack Corzine or some other Dick? In that case all horrible candidates should just distract you with proximaty causation. Connecting Corzine to well…Global Warming…why the Clippers can’t win a NBA championship.
Yes…MFGlobal etc etc…it’s all bad. But she is a victim of her inability to run a broker succesfully. Corzine is her conservative excuse to blame Obama and any other Liberal for her firms failure.
lol look at her youtube videos:
one on the evil of islam
http://www.youtube.com/watch?v=rfqNPJVWzpw&feature=channel_video_title
another one about western civilization “bleeding on a satanic altar”. She talks about Satan and compares Islam to, you guess it, Marxism.
http://www.youtube.com/watch?v=q2ugh_DuYMM&feature=relmfu
Crazy republican Sarah Palin Christian. I called it right.
I stopped reading those idiots at 0hedge a long time ago. Why? They are depressed idiots who want the system to fail.
That’s pretty high quality crazy, but not quite to the level required to properly illuminate the batsh!t crazy that freely flows from this lunatic. Therefore, I humbly submit the following;
http://youtu.be/jZywKHSgwk8
Wow. She really should focus on her on holy book first. Here’s just a sampling of some of the content is eligible for prime-time television:
http://www.youtube.com/watch?v=DSXJzybEeJM&feature=related
Toby’s “look”? I have copyrights on that, he owes me money.
If there is a big rally in the market, it will be time to sell something and realize some gains.
There are soooo many hedge funds under water and it is looking more and more like they will end the year negative. I see the potential huge redemptions coming in at year end with many getting ahead of this and raising cash in December which I see as being very negative for end of year and going into January. Yet we may see a typical low volume melt up going into the holidays but time looks to have run out for most funds. If your use to getting mega double digit returns in up and down markets will you stick around in a fund that finishes the year down? I don’t think so.