Bullish Information

[Jim Nickerson]

Re: Bullish Information

HOW MANY ARE BULLISH ON US EQUITIES RIGHT NOW?

There has been little fundamental support that my pea-sized brain has recognized since the March 2009 lows, yet anyone stupid/smart enough to be long since then has or should have made some rather serious gains.

There are a number of technical "things" that have made me buy some long and +200% long positions over the past week or so. I don't know that I can think of all of them right now, but I'll try to put them into this post at least with some links.

From Barron's on 7/10/2010 some comments by Paul Desmond from Lowry's Reports. I just saw this tonight, so it has had nothing to do with my personally opening some long positions. http://online.barrons.com/article/SB...el_article%3D1

WHILE THE HEADLINES HAVE been foreboding, Paul Desmond, president of Lawry Research, a technical advisory firm, has remained decidedly upbeat. Last week's market action "said the correction is over and we are in the remainder of a bull market," he says.

Desmond watches demand for stocks in an effort to determine the market's direction. Since April he has seen a broadening of demand, with an increasing number of stocks advancing versus the number of stocks declining.

While volatility may be greater as hedge funds and electronic traders jump in and out of the market, the upward trend of the market should continue for awhile. We're a year and a half into a bull market and there are no early signs that a top is around the corner. So Desmond believes this bull has one and a half to two years to go.
"The risk of loss is about as low as you get in the stock market and investors ought to be heavily invested at this point," he says.

Even more contrarian is his suggestion that investors should pile into mid-cap and small-cap stocks, because they will outperform. One reason for small cap outperformance is simple: The law of small numbers makes it much easier for a small company's shares to double than for a large-cap stock to do the same.

Another reason small-caps should do well is that they are among the most depressed equities right now. Everyone is fearful and hiding in blue chip stocks, Desmond notes. While large-cap stocks hold up better in bear markets, they have underperformed in bull markets in the past 70 years.

These days you can't get much more contrarian that than right now.

From the last few days Mark Hulbert has commented:

"It would appear that the stock market has built up enough momentum to keep the rally going for a while longer." http://www.marketwatch.com/story/mar...egs-2010-07-14

Last week the stock market had its best week in a year.

And yet you'd never know it by reviewing investment advisors' outlooks: At the end of the week they were collectively no more bullish than they were at the beginning.


Their skepticism in the face of the rally is a bullish omen, according to contrarian analysis.

http://www.marketwatch.com/story/sen...eek-2010-07-13

And here is a comment I ran across in Think Tank over at Big Picture by Peter Boockvar, a stategist at Miller Tabak who posts almost daily in Ritholz's Think Tank

Dear Short Sellers, it’s me Boockvar, pronounced without the C. Some think I’m Mr. Bear, I prefer Mr. Realist (reflation trade bull in March ‘09). I’m writing now to say be very, very careful here into year end (2011 a different story with plenty of concern). Combine a settling down of European credit stress with potentially a better than feared earnings season (INTC was impressive), the growing possibility of gridlock in Washington, DC come November (Intrade.com has greater than 50% chance of change in the House), a Fed that wouldn’t know a rate hike if even the Bank of Japan wrote it on Bernanke’s forehead and a very underinvested money management community and we are set up for a big rally (after some backing and filling of the current 7% bounce as we are somewhat overbought short term) over the next 5 1/2 month which may have already started.

I never have commented anywhere on the web except at itulip, but after reading the three comments there http://www.ritholtz.com/blog/2010/07...short-sellers/
I was inclined to register and comment (I am "riodogg')

riodogg Says:
July 14th, 2010 at 11:31 am Were the three preceding comments (admittedly a very small sample) to be representative of the general lack of bullishness, then certainly sentiment on a contrary basis is supportive of a rally in here, now.

Hulbert at MarketWatch has written a couple of articles 13 and14 Jul supporting possibility of runup in here.

Peter, I am with you until proven wrong. Hope we can look back on this and say “good call.”

So far I still have not mentioned what has made me personally seek out some long positions, i.e be more bullish. And because I need to eat, I'll get back to this time permitting (besides whatever moves me ain't that important).

Considering the things that happened today regarding news, I suppose they could provide some boost to whatever else has moved the markets in the past 8-9 days.

Financial reform passed Senate now to Obama.
GoM oil spill capped, I suppose.
Goldman Sachs settles suit for 550M with SEC.

I don't know if any of those are market movers or not. We'll see.

[Jim Nickerson]

Re: Bullish Information

Several data points that I have noted in the past 7-10 days.

For the weekending 7/2/10, Barron's reported an OEX put/call ratio of 0.56. That is the lowest I have recorded going back to Nov 1999. At 3/6/09 that ratio was reported as 0.66, and at the interim low around 11/21/08 it was 0.87.

Staying with OEX daily data obtained from http://www.cboe.com/data/mktstatall.aspx

The 10-DMA of the OEX ratios hit 0.70 on 7/8/2010. In my data back to October 2002, that was the lowest reading. The previous low was about a month before the March 2009 equity market lows and was then 0.71.

I have no inclination to bet a whole lot on these two extremes in OEX, but time will tell us whether the extremes may have marked/been associated with an interim low in the equity indices.

There have certainly been times when breadth indicators were more oversold, but on 7/2, the 10 day advance-declines were at a generally significant low level. The same was noted with the McClellan NYSE and Nasdaq oscillators. Oversold, but less so than back on 5/27/10.

On 7/7 an 7/13 the NYSE up volume and up points were 90% positive. This (90% up days) has been denoted as "panic buying" by Paul Desmond. On 7/8 and 7/9 the NYSE had 80% up days in volume and points. Such back-to-back 80% up days has been attributed some bullish significance by Desmond.

One proprietary service I use, decisonpoint.com, has a daily report on various ETF's and indices that represent market sectors. These indices or ETF's move from "sells" to "neutrals" to "buys" based on various mechanical signals produced by the price action using Carl Swenlin's models. Recent action (buy signals) in some of his indicators has prompted me to enter some long positions, despite reasons of a more fundamental nature not to be long that might be bouncing around in my brain case.

In 2009, I watched index and ETF after index and ETF in Swenlin's daily report go from sell to neutral to buy, and did nothing because of my fundamental bearishness. Mostly I pay attention to John Hussman's and David Rosenberg's commentary, and those two guys have remained steadfastly bearish throughout the move from the 2009 lows.

Another guy I have read for a number of years has been Dan Sullivan who publishes The Chartist Newsletter. Sullivan has a certain reliance upon the technical behavior exhibited by the markets and that reliance influences his entry and exit in the market. Currently he is out of the market--100% in cash. In a newsletter of his that came out tonight he wrote, "With our models in a negative mode, our advice is to remain in cash. As you know, we follow the price action of the market, not the economy, talking heads, or politicians. Our next move will be a “buy,” the only question is when." JN emphasis.

Now I am sure some would consider Sullivan's approach "crazy;" "some" might be of the ilk of Hussman and Rosenberg. But it is a fact, I believe a fact, that the market does not always behave the way various seers think it should. That is one point that supports my use of technical analytical aids. The technical indicators of Swenlin and Sullivan's methods got people into the market updraft coming out of the March 2009 lows, when those who are governed by fundamental assessments, or those looking mainly at the economy or listening to talking heads largely missed the move. To each his own.

I'm not suggesting anyone who reads this is wrong if he/she has no bullishness in their bones. Actually I like being bullish when no one else is.

[Jim Nickerson]

Re: Bullish Information

Just to point out the possible idiocy of being bullish on anything to do with US equities, here is a link to a post by Ambrose Evan-Pritchard that should serve as a record to how bad things are in the US just right now. http://www.telegraph.co.uk/finance/c...-tumbling.html Thanks to pythonicow for link and Rumsfeld for initially posting article on tulip.