Despite the crash in this bubble…
…a recent SeekingAlpha piece proclaiming a justified $100/share valuation elicited these comments:
This is not an EWI promo, just an observance. I am listening to he of the infinite patience and big picture perspective, the thoroughly lampooned (by bull wise guys and emboldened trend followers now promoting their own genius) Robert Prechter speak about hope and fear.
First, we’ll insert our weekly chart of the S&P 500, for reference. At the end we’ll include the monthly cycle chart and a sentiment cycle chart from Sentimentrader.com by way of NFTRH 285. People can then form their own conclusions.
The gold sector is peopled by a high concentration of contrary indicators because it is a relatively (to the vast world of equities and bonds) small market that offers refuge from some of the damaging aspects of the spectrum of investment products that are supported by the manipulation of interest rates and printed (and digitally created) money supplies. Thus, gold has moral high ground if an asset can be thought to have morality.
Today as I watch a former holding (TAS) plummet after being errr, promoted last week at (where else?) SeekingAlpha by some genius… on the heels of watching the gold ‘community’ get Ukrained and FOMCed in a double barreled assault, I am reminded just how dangerous herding behavior has become in the social networking phase of the information age, where every fucking genius has got a pitch and a play, every news outlet has got ready made reasoning and the whole cacophonous mess needs an ever more finely tuned Bullshit Detector.
Hence last week’s opening NFTRH segment. And by the way, I do not view Dan Norcini as any sort of a hype monger. Quite the contrary. From what I have seen he is a well grounded and honest person.
Tune Out the Noise, Follow Technicals & Macro Fundamentals
Mail from a subscriber highlighting Dan Norcini’s view of the precious metals rally being little more than Ukraine-inspired hedge fund short-covering is but one of many inputs I have either received or seen on the internet that for my purposes at least, will be tuned down. I don’t doubt that Mr. Norcini has good experience as a professional trader, but I do question the importance he seems to assign to what the “hedge fund community” is doing at any given time.
Other inputs received or observed range from the utterly ridiculous ‘China copper demand is declining, so a decline in China gold demand will push gold prices down’ to a wide range of bull and bear rationalizations that vary from unlikely to plausible. They have one thing in common; they serve to amp up emotions.
Consider this post-2009 litany: Flash Crash → QE2 → Euro Crisis → Greek Austerity Vote → Cyprus → Operation Twist → Fiscal Cliff → QE3 → Taper → Ukraine → [today we can add in the Yellen 'you know, like 6 months after taper ends, sort of...' rate hike hysteria]
Guest Post by Elliott Wave International
The DJIA, S&P and NASDAQ are struggling to bounce. Yet the bullish convictions remain high. Says a February 5 Investor’s Business Daily headline:
“Why Mutual Fund Investors Need Not Panic After January Sell-Off”
The VIX signaled that market participants were way too complacent about the bull market well ahead of the correction. This made sense because the complacency reading came hand in hand with ‘dumb money’ sentiment way over bullish.
In this case the signal took patience that I for one did not have. If one had just noted the hysterical highs in bullish sentiment and the flat lined VIX at support, one might have simply bought call options on the VIX and paid no attention to them until they paid off. That is what one might have done, but psychology is such a prominent aspect of the markets for we humans. It is harder to do than it sounds.
Dumb money looking pretty smart, eh? Market sentiment is not really a finely tuned timing tool, but the above is representative of a condition that will be in place at the next minor and/or major market top.
With the exception of the Gold Bugs and to a lesser degree, the biotechs, the stock market is over bullish. It is debatable as to whether the recent semi-extreme readings were bull killers (I am sticking with an eventual cyclical top out in early to mid 2014). But it does appear (especially when factoring in things like the lack of leadership in the BKX-SPX ratio and the S&P 500 at a daily RSI topping point for example) that the market is ripe for a continued short term decline here. Adding to the case (graphics courtesy of the highly recommended Sentimentrader.com)…
Another thing that NFTRH 260′s 24 pages did not allow time for was a sentiment update, so here are some thoughts now with a graphic courtesy of Sentimentrader.com.
Unfortunately we are flying blind with respect to CoT data because the CFTC is shuttered up with the government shutdown. But here are the updates in other areas.