10/26/2013 Weekend Update

[taggard]

The info this weekend is a little alarming. Smart Money record short, institutional accumulation distribution divergence persists and both AAII and II are very bullish.
The chart below show Smart Money record short, despite all the problem seems gone: No debt ceiling problem anymore and QE seems forever. Why those guy still want hedge?

“”Smart Money record short””
Cobra: if you were a contrarian, would you surmise that these huge shorts have the potential to produce a monster squeeze?

a couple of ideas. (1) the issue with squeeze is always possible but highly unlikely. the clue is the "smart money". so when looking at futures or options positions it's not only the overt positions but who is holding them and why. the whole large money pros stuff in futures works pretty well--if you can actually see it on a chart. in my experience judging the size of the move is not a great idea--but the direction of the move usually works (usually means about 8.5-9x out of 10 when you can actually see something clearly on the chart). (2) the reasons for hedging (again as a rule not in every case) are not so much the news--but the underlying math. but even more interesting is the idea that tops often happen on good news. so when they sell good news you are really scratching your head because that is a clue. (3) the hedging while more math than anything else is inverse to AAII and II. so the second everyone is gung ho hedgers get cautious. having these charts line up is usually a notable clue.

something to consider is that we are barely holding our own growth wise (i am using emplyoment/gdp and other stuff as a sort of cluster) with the 85 bill a month. everyone is focused on the idea that the money will get pulled at some point--but nobody is thinking "what if it is not enough". so if we have a typical business cycle ether for exogenous or endogenous "reasons" (quotes because everything is linked global to local at this point) then the 85 will not cut it. Some fed and non fed studies showed that we get less than 1% (so say 1/3 of a percent) due to the fed action. while others have speculated that the estimate of 25 billion in costs from gov. closing down with the multiplier effect works to 100 billion negative. now i find it odd that you are seeing 25 billion maybe outdoing 1 trillion in bond buying. but rather than just discard the idea what if there is some general truth to it--and we wind up with (one way or another) spending cuts this coming year about 5 years (so typical old school biz cycle) after the bottom in 2009.

the idea being that doubling fed intervention sometime in the first half of next year would be a problem on a political level. further Yellen is going to really be in a tight spot in terms of preserving fed independence--if anything goes wrong. in either direction

summing up--the hedging on good news is certainly a clue. the continued idea that just putting out 85 billion in bond buying actually works (as opposed to working as a function of perception rather than underlying math) is really widely held. continued discussion of this 85k being lowered has been wrong for a year. that is a hint too. eg when don't you remove life support on a messed up individual? any normal cycle will render the 85 billion too low. raising it a lot could be a political problem--not raising it could be a political problem. and above all here we are finally seeing the end of a very poor base of economic theory held over the past god knows how many years. as is noted in this greenspan quote from 10-24-13 and the lower quote from wsj story (both lifted from noland's intro this week)

All of us go back for a long way, always understood that there's a lot of irrational exuberance and fear and all of those various aspects of human nature affecting the GDP and the market and everything else. But we all assumed, and in fact it's almost general, that those were random and that they would essentially wash out. And therefore you could set up your econometric models - or any model you want - looking only at the effects of people acting rationally in their long-term self-interest. And that was a general proposition - and that is what they were teaching in the universities. And that's basically what economics was all about going all the way back into the last two centuries ago

he is baffled by all the blame that has been piled on him. Since the recession, critics have said the increased money supply and low interest rates during his tenure at the Fed from 1987 to 2006 led to bubble investments. Mr. Greenspan first heard that theory, he says, in 2007, when John Taylor, a professor of economics at Stanford University who has advised Republicans, made the connection between easy money and the housing bubble. 'It had absolutely nothing to do with the housing bubble,' [Greenspan] says. 'That's ridiculous.'"

the obvious truth is that everyone acts in their perceived self interest--but that is limited by knowledge and timing--it makes sense to get long bubbles and that is not irrational. irrational is holding them after they crack. the hedgers generally are in the first group--and the aaii and ii are generally in the second

have a good weekend

[Al_Dente]

TAG:
Me being very simple: record anything, like “record shorts” just sounds like a crowded trade to me
(eg: everybody is loaded with shorts…. who is left to short?)
Anyway, thanks Taggard
As a “trend follower” I can’t do anything about the bear until price actually breaks down, then I get to say: “Oh, I see bear, okay then….”
(meaning that I can speculate on a top, but price must confirm it, and that hasn’t happened yet… maybe soon…. maybe Wednesday …. maybe not… )

Here’s a speculative bear chart:
Bottom panel: Junk bonds approach double-top resistance with a doji, doji, doji
(oy, oy, oy)

[Dandy46]

The info this weekend is a little alarming. Smart Money record short, institutional accumulation distribution divergence persists and both AAII and II are very bullish.
The chart below show Smart Money record short, despite all the problem seems gone: No debt ceiling problem anymore and QE seems forever. Why those guy still want hedge?

“”Smart Money record short””
Cobra: if you were a contrarian, would you surmise that these huge shorts have the potential to produce a monster squeeze?

a couple of ideas. (1) the issue with squeeze is always possible but highly unlikely. the clue is the "smart money". so when looking at futures or options positions it's not only the overt positions but who is holding them and why. the whole large money pros stuff in futures works pretty well--if you can actually see it on a chart. in my experience judging the size of the move is not a great idea--but the direction of the move usually works (usually means about 8.5-9x out of 10 when you can actually see something clearly on the chart). (2) the reasons for hedging (again as a rule not in every case) are not so much the news--but the underlying math. but even more interesting is the idea that tops often happen on good news. so when they sell good news you are really scratching your head because that is a clue. (3) the hedging while more math than anything else is inverse to AAII and II. so the second everyone is gung ho hedgers get cautious. having these charts line up is usually a notable clue.

something to consider is that we are barely holding our own growth wise (i am using emplyoment/gdp and other stuff as a sort of cluster) with the 85 bill a month. everyone is focused on the idea that the money will get pulled at some point--but nobody is thinking "what if it is not enough". so if we have a typical business cycle ether for exogenous or endogenous "reasons" (quotes because everything is linked global to local at this point) then the 85 will not cut it. Some fed and non fed studies showed that we get less than 1% (so say 1/3 of a percent) due to the fed action. while others have speculated that the estimate of 25 billion in costs from gov. closing down with the multiplier effect works to 100 billion negative. now i find it odd that you are seeing 25 billion maybe outdoing 1 trillion in bond buying. but rather than just discard the idea what if there is some general truth to it--and we wind up with (one way or another) spending cuts this coming year about 5 years (so typical old school biz cycle) after the bottom in 2009.

the idea being that doubling fed intervention sometime in the first half of next year would be a problem on a political level. further Yellen is going to really be in a tight spot in terms of preserving fed independence--if anything goes wrong. in either direction

summing up--the hedging on good news is certainly a clue. the continued idea that just putting out 85 billion in bond buying actually works (as opposed to working as a function of perception rather than underlying math) is really widely held. continued discussion of this 85k being lowered has been wrong for a year. that is a hint too. eg when don't you remove life support on a messed up individual? any normal cycle will render the 85 billion too low. raising it a lot could be a political problem--not raising it could be a political problem. and above all here we are finally seeing the end of a very poor base of economic theory held over the past god knows how many years. as is noted in this greenspan quote from 10-24-13 and the lower quote from wsj story (both lifted from noland's intro this week)

All of us go back for a long way, always understood that there's a lot of irrational exuberance and fear and all of those various aspects of human nature affecting the GDP and the market and everything else. But we all assumed, and in fact it's almost general, that those were random and that they would essentially wash out. And therefore you could set up your econometric models - or any model you want - looking only at the effects of people acting rationally in their long-term self-interest. And that was a general proposition - and that is what they were teaching in the universities. And that's basically what economics was all about going all the way back into the last two centuries ago

he is baffled by all the blame that has been piled on him. Since the recession, critics have said the increased money supply and low interest rates during his tenure at the Fed from 1987 to 2006 led to bubble investments. Mr. Greenspan first heard that theory, he says, in 2007, when John Taylor, a professor of economics at Stanford University who has advised Republicans, made the connection between easy money and the housing bubble. 'It had absolutely nothing to do with the housing bubble,' [Greenspan] says. 'That's ridiculous.'"

the obvious truth is that everyone acts in their perceived self interest--but that is limited by knowledge and timing--it makes sense to get long bubbles and that is not irrational. irrational is holding them after they crack. the hedgers generally are in the first group--and the aaii and ii are generally in the second

have a good weekend

Great thesis Taggart! Always enjoy your comments, though I typically have to 'ponder' them a few times. Keep up the thoughtfulness!

[taggard]

[quote="Al_Dente"]TAG:
Me being very simple: record anything, like “record shorts” just sounds like a crowded trade to me
(eg: everybody is loaded with shorts…. who is left to short?)
Anyway, thanks Taggard
As a “trend follower” I can’t do anything about the bear until price actually breaks down, then I get to say: “Oh, I see bear, okay then….”
(meaning that I can speculate on a top, but price must confirm it, and that hasn’t happened yet… maybe soon…. maybe Wednesday …. maybe not… )

we are similar in that i wait for the move (99% of the time) before putting money on it. (bit more below) first on the record shorts--you note it sounds like a crowded trade. well what about the AAII and II so "not so smart money"? this is who is left to short--namely everyone other than the commercial futs guys. you can get a second view of this by pulling up outstanding interest in options on spy if you just look at the nov dec and jan reg options (so ignoring any weekly stuff but the main exp weeks) they are heavy calls. so the evidence that we seem to have is that generally people other than commercial futs guys seem to be mostly long. i realize this is not exact--and i am in no way suggesting a trade to anyone (ever)--but as best i can see that is what is going on right now.

these ideas below are just me thinking about general stuff and are not related to your comments--but are just general things i think about re trading with trends. and trend reversals.

here is an idea i often play with re the idea of speculation in another form. if you look back over the last 2 weeks a lot of the posts on the move up were fairly negative and speculative. that is people were looking for a pivot point prior to it's happening while noting we were in an uptrend. my personal experience doing this (which i did for the first time in a long time mid week here) is that it tends to make one wait for the trade to the inverse direction. as opposed to exploiting the move in play currently. so if i find myself looking at 177 and we are at 175 and uptrending--i want to exploit the 2 point move less with the idea it's risky since there is a pivot at the 177 area. in fact often the best idea is to invert that--esp if there are multiple reasons for that area to get hit.

meaning you want to get long exactly because you see the pivot. where this is really nutty is that often in a trend the end comes on an overshot--or at least some strong bar fairly close to the end of the move. so the obvious call of caution is actually not fitting the likely price action. so normally you are thinking "yo dude the trend is old caution is advised"--yet usually at the end or fairly close to the end there is some stupid outsized move---that invalidates the normal thinking. the same general idea holds for length of trends. i tend to leave trends early--and this always justified incorrectly as "the longer the trend the more risk i am taking" which is both true and false at the same time as a general principal. obviously my bias is showing. once you are in some sort of topping situation with multiple overlapping small bars this is not the case.

another issue with playing the moves is the trigger point. the move can be subtle or strong. Stronger moves are easier in the sense that there is much less risk entering blindly into a fast trend. they are harder in that the moves always seem outsized given what one has just experienced during the set up phase to the strong trend reversal. thus one often doesn't want to enter. subtle moves are much harder to get into in terms of when--but feel easier due to the idea they are gentle. so a thing can often feel inverse to the actual safety. the problem here is living in the past in both cases. on one hand we need context on charts--the past--on the other we become conditioned by it one way or another if we are not really careful.

part of all this folds back in on itself in that everyone and his dog is now using TA--this was not the case 10 years ago. so the rules in TA are an interesting problem. obviously they generally work--yet at the same time they are creating the actions we are playing with them. so you are playing against people using the same rules. this one reason for example that stuff like head and shoulders patterns will fail on index trades if you hear people talking about them and are often great counter trades when they fail. all this is a long way of saying something about how we see ourselves. you often hear traders saying "they are taking it up" or something to this effect. but we all make up the market--so we are taking it up--and likely because we all see the same TA patterns to some extent. even larger money uses TA now--they just use other stuff too. computers are trend followers and so on.

so if we are using these tools it's key to realize we ourselves add value to them. my experience is that this usually involves something TA is supposed to remove--namely emotions. as an example--entering into a fast trend is often hard emotionally--yet is actually a very good trade most of the time. People often argue that TA says wait for a pull back. But that is an interpretation of TA. In this case as in many (sigh. . ) what is hard is actually the right thing to do. so that you walk towards fear in this situation. fear is your friend. and amusingly emotion is telling you something you totally don't want to hear but should listen too. and you can prove it by simply paper trading it blindly for 100 trades.

so what i am playing with is the idea that there is rarely exactly "clean" TA. There is always a bias or view. this bias or view often makes for some comfort in a very difficult situation. but it also often lowers returns and creates distance from the actual market action. i know that often what i am seeing is an illusion or construct--which i use TA to support. we are complicated individuals without discrete brain functions. using both positive and negative underlying emotions in a considered way is not against TA--because such things are going on in any case--it is hard to impossible to be without bias. maybe it's not even a good idea if we could? the problem is being aware of the bias underlying the application--and using it. so you are sometimes walking towards fear. i order to do this you must allow the fear to happen and then react correctly in relation to it. Kurtz would have done well with strong trend entry.

you must make a friend of horror. Horror and moral terror are your friends. If they are not, then they are enemies to be feared. They are truly enemies! (col kurtz (ret)

[taggard]

The info this weekend is a little alarming. Smart Money record short, institutional accumulation distribution divergence persists and both AAII and II are
Great thesis Taggart! Always enjoy your comments, though I typically have to 'ponder' them a few times. Keep up the thoughtfulness!

thank you. the ideas are actually quite simple (the market only goes up or down) the problem is finding a way to express them in words. anything interesting is very hard to talk about--what does love feel like? what is the nature of death? what is beauty.

have a good weekend everyone.

[Cobra]

The info this weekend is a little alarming. Smart Money record short, institutional accumulation distribution divergence persists and both AAII and II are very bullish.
The chart below show Smart Money record short, despite all the problem seems gone: No debt ceiling problem anymore and QE seems forever. Why those guy still want hedge?

“”Smart Money record short””
Cobra: if you were a contrarian, would you surmise that these huge shorts have the potential to produce a monster squeeze?

Those are hedgers, they have huge longs.

[uempel]

Cycle (polka dots), trendline and ellipses all suggesting the same move In order to break resistance on the upside SPX first has to revert - 1734, 1720 or even lower.

[shaca]

it's likely a turning point for peripheral europe, will US follow in the next weeks?
dark cloud cover BBVA and bearish engulfing for the portuguese index, these never failed in the last years, and weekly bund seems very bullish to me

[TWT]

$USDJPY: Follow up of the Triangle wave (B) option

[TWT]

$DX_F: The unloved USD could have established a tradeable bottom

[gappy]

Gold volatility trend strength ADX used to spike before a price drop, until recently. When they kissed on the chart, price declined. The circled gap on the right suggests room for a higher entry to short at. From http://jessescrossroadscafe.blogspot.co ... report.com....

jesse.PNG

vol.png

Interesting the volatility moonshot around April 15th. IRS being the usual suspect. From five years ago...

irs.PNG

http://www.newswithviews.com/brownfield ... ield67.htm

[fehro]

SPX daily from the 2009 lows. Red top channel in mid Dec = 1850ish Magenta = 1900 should we continue a strong climb.. if not mind the lower trends for lower targets.

Plus the COMP Monthly .. for a perspective on uber exuberance

[TWT]

$SMH: Signs of a potential reversal

[fehro]

US dollar Weekly long long term

[Al_Dente]

Latest NYSE Short Interest Report
Worthy of note:
106% increase in shorts for the short-spy vehicle SH (shorting a short vehicle is a long-spy bet)
163% increase in semiconductor shorts using XSD instead of SMH
53% increase in Russell shorts using IWN instead of IWM
51% increase in UVXY shorts
46% increase in XIV shorts
etc…
http://online.wsj.com/mdc/public/page/2 ... tml#shortD

[Al_Dente]

NEW STUFF ALERT for stockcharts.com subscribers
There is a new “Type” of chart available that is an improvement on the CandleVolume and EquiVolume styles.
Called "Arms CandleVolume" you can select it under any chart using the “Type” dropdown menu.
http://blogs.stockcharts.com/chipanders ... ndlevolume

Here it is on daily AAPL; the 60 minute view is also useful.

[BullBear52x]

US dollar Weekly long long term

Very sad what they(we) do to the dollar, I see no end to it. DBV is way off sync to the SPX any more.

[BullBear52x]

There's dream in this chart for bears, but the internals and supports suggest not to be overly bearish.

[BullBear52x]

JPM and FAS are still on the buy, but my extreme counter trend got the sell on them Friday.

[BullBear52x]

$SMH: Signs of a potential reversal

Nice, same selling spot Friday.