“Hope” is a Sell Signal
Both President Bush and Ben Bernanke spoke on Tuesday, and there were points when both seemed to be on the verge of tears. They know that the situation is hopeless.
During the week before the House first voted down the TARP, CNBC constantly ran a message on the screen: “Hope on the Horizon”. That was a sell signal. On the weekend before the House voted down the TARP, news stories were filled with the words “hope” and “hopeful” when describing the prospects for the House passing the TARP. That was a sell signal.
Numerous times we have seen various things announced and implemented. They have all been sell signals. Just today, the market rallied up a bit before Bernanke’s speech. The market was “hoping” that Bernanke would announce a rate cut, which never happens during such a speech. That was a sell signal. I shorted right into that foolish hope.
I’m thinking that I can short hope all the way down to the bottom. Once there is no hope, I will know to stop shorting. How does the hope end? The market beats it out of traders by slamming their heads into the concrete over and over. Which brings us to the next topic:
Should We Forget About Rallies?
We have all been trying to spot the beginning of the next rally. Perhaps instead we should be looking at the October 2002 low and trying to estimate when we will arrive there, and subsequently plunge through. This economy seems to be in far worse shape than the 2002 economy, so why not? The market seems intent on proceeding down in a straight line. Why argue?
How to Short Rallies When there are No Rallies
Suppose the S&P 500 drops 80 points in the morning, and then makes an intra-day bounce of 40 points? Guess what? You have a nice 40-point rally to short.
Maybe my pessimism here will be a contrary indicator. We will see. I dare this market to rally. I double-dog dare it!
Watch the comments for updates throughout the day.
Let me introduce a new technical tool – the LB Indicator. LB standing for Lizard Brain; i.e. that earliest evolved and dominant lower part of our brains that drives us around like a little red wagon. If you want to sell something first you persuade the lizard brain and then the higher cerebral functions.
If a debate, speech whatever doesn’t wrap a hard idea in a compelling and convincing emotional argument then it won’t fly. On the other hand we’re in trouble because we’ve substituted the emotional arguments for grounded emotional arguments. Have to have both.
Speaking of which crowding out only happens when there’s a shortage of investable capital and a demand for it. Not a problem the last eight years and not likely to be a problem for the next eight. Just the opposite in fact; otherwise we wouldn’t have had the last two years where buybacks exceeded capital investment in the US.
Quite the sell-off we are seeing in this final 1/2 hr of the day. 3:30 hit and things started to fall. ICE doing surprisingly well right now though.
SPY may be back-testing the intra-day downtrend line that it broke above a couple of hours ago.
Dblwyo – crowding out in a sense that capital does not find productive new employment. Stock buybacks or paying large dividends is not productive. Neither is having the govt allocate resources. The are unable to find the best allocation as history has shown over and over again.
SPY needs to hold $98 for a successful back-test of the downtrend line.
Lesson to self – sell on any strength in this market
I remember something about a Hindenburg Omen a while back… I thought that it warned of a crash by mid October?
Anyone think that is still relevant? Anyone think that the decline over the past few days count as a crash?
Good Old Fed. I like it when they stir it up. Makes me happy.
TNX still +2.09. Go figure. Today should have been a moon shot. The news and Fed-Speak trumps everything.
I hope they say something tonight to shake it up tomorrow.
What’s this, 6 down days in a row? Roll the dice and let’s get lucky 7.
Dblwyo;
Is the LB indicator only a sell signal, not a buy?
George – very funny. When LBI > substance sell, LBI=substance neutral, LBI Substance >> 0, that is good ideas well sold then buy. My history books tell me such moments are rumored to have happened but I’m short of and on current examples.
Does Cramer come on TV at 3:30?
George,
Cramer’s “Stop Trading” thing usually comes on around 2:45pm.
Matt
SPY below $98 in afterhours.
Dblwyo;
I don’t think I’ll find any substance in LBI. I’ll try.
I r skrewedddddddd lol. well tomorrow I should be home and it should be an interesting day. any of you saw the pending home sales report? looks promising if next thursdays report can confirm it. and GE Expected to cut dividend. I wonder if a few earnings will shake out the shorts the natural free market way lol.
so tempted to buy more DDM at this price to really average down and sell at the next move up. huge risk. maybe I should hedge (a little too late) and buy the inverse of it. will research when I get home. all this pointless talk comes from mobile on a bus haha.
- K
The S&P was only down 11 points today. In this market, that’s just noise. This is the sort of day that should give the bears pause because it showed that the bulls still have some fight in them. Today might be a “false dawn” day where it looked like the bulls were defeated, but may prove to be a turning point after all.
There was a massive surge in the TLT bond ETF during the last 15 minutes of trading. So maybe that had something to do with the sell-off.
I want GE not to cut dividends. that along with the bearish market will destroy shorts in the near term. shorts that cover are considered bulls in my view because they think the price has dropped enough for profit taking. if financials keep drowning this will suuuck. real estate etf early next year. small bet maybe nice returns.
I Held to my “long term” plan of selling my puts if there was a rate cut or SPX hits 950. Can’t say I expected it to happen in less than a week of opening my position, but oh well. I was estimating early November.
I woke up late (had I heard about the cut earlier I would have been out at the open) and was away from a computer for most of the day so I could only watch in horror as the markets jumped back up late in the day. If I had known Paulson was going to open his yapper I would have gone all in short at that time!
I agree Matt, this may be a time where we should pause and regain our bearings. A 1% drop might as well be an up day considering 5-8% drops were becoming rather normal. I’ll be waiting a few days until I jump back in just to see how this all plays out.
George – forgive my sense of humor or at least it’s indulgence but… how ’bout we create the LBI
where LBI = (LizardBraining-Substance)/LB X 100 ?
Lots of arm-waving, little substance LBI is big, little arm-waving, lots of substance LBI is small. Want to be in that in between range like Slowsto between 80 and 20, right ?
This is really bad – making combined trading and political economy jokes.
Matt,
I doubled down on DIA @96. Should I cover in the AH?
Dblwyo;
I like it. I think you have something there.
All Fed-Speak days are volatile in one form or another. There are actually traders that trade the news including Fed days. Nothing wrong with adding another tool.
We’ll see how it works the next time.
newbie;
That double-down, was that short or long?
George,
Short @ 92 & 96. Even on the first trade cleaned up on the 2nd. FSLR short @ 122 & 131. Got nervous and barfed the 2nd @ 133
anyone looking at google $335? i could really go for 10 shares and make some fast $ Oct 16, 2008 Q3 2008 Earnings Release – 12:00PM EDT
George,
FLSR crashed in the AH & I have a OTM Call to hedge, I am leaning towards covering the DIA and remounting after a bounce. Maybe take half off tonight?
Hmmm, things are getting a bit over the top or towards the bottom:
So Iceland defaults on… that has to be sorted out it seems, but we have at least two more banks triggering the CDSs. UK is suing Iceland to honor their obligations in the UK. Maybe to refinance their
bailout plan which for the US would translate to more than 4 trillion USD.
Banks paying 9.5pct at overnight auction with the ECB, LIBOR 5.38 – global rate cut, eh? So we have talk about sufficient funds but no one is willing to loan anything. Sounds like a lack of funds to meet the obligations to me. Btw US mortgages are linked to 6month LIBOR – up 1% during the last month. Expect higher defaults – the Fed did everything to prevent that but then the fools decided to kill LEH because they had to show they have balls. Balls maybe, but no clue about banking and risk.
Lowering interest rate – Japan unfortunately could not participate – kills the carry trade, which was a key source of credit generation over the last years. So the rate cut is likely to do more harm than good.
Global shippers have the highest inflow of new vessels in the next years. They are now talking about converting these ships to cruise ships. I don’t see a demand for lots of new cruise ships for retirees without savings.
newbie;
Gotcha. That’s complicated to me not knowing options. I understand the hedge and I do that some times.
Thanks
When AAPL gets down to the mid-70s, I’m buying.
what about google? i got limit orders AH but wont get filled
come on apple drop to $50 quick so i can get in then jump up
Well, I’ve been dipping in since Monday and I’m 60% long, 40% cash.
Reasons:
1) Way oversold. S&P down 15% in 5 days. Worst performance since the ’87 crash. 20 years.
2) CNBC and Cramer have given up. Excessive pessimism -> contarian indicator.
3) Everytthing is being sold, good and bad companies. Something like 70% 52-week lows on the S&P (correct me if I’m wrong)
4) The assumption is that the financials will get slaughtered tomorrow with the removal of the short-protection. However, the assumption was instigating this rule would protect financials. Ask WaMu and Wachovia how that worked out.
5) While I will certainly agree that the rate-cut wasn’t as successful as hoped for the bulls (the rally lasted about an hour pre-market), the bailout bill and CP purchase have not been implemented yet. Think of them as rate cuts that have been announced, but no one knows
I think the shorts are getting overconfidant and there is way
George,
I covered all the DIA & FSLR after seeing the potential bull catalyst in the IBM earnings announcement Shorting on the sixth down day and hoping for a 7th is not good for my sleep patterns
newbie – I bought SSO on the close. We’ll see what happens. That was a Paulson reaction move. I’m thinking those types of moves are short-lived. I rarely buy EOD, but everything is getting too juicy. Risk is getting lower and lower. Plus I’m still eyeing that breakaway gap on SDS.
Paul F;
Can’t say I blame you much for taking long positions. Too tempting, even if it takes a while to come back – which it will.