4 replies to this topic

[greenie]

A big ship does not turn in minutes. It takes time. Similarly, the markets do not flip switch overnight to jump from bull phase to bear phase. It is a gradual long-drawn process that happens over time. However, just like the turning ship, if you take snapshots of the market every few months, you will be able to recognize that it is turning.

Our ship called Economy Americana showed early intentions of turning in July 2005, coincident with Time magazine's cover "Home $weet Home". If you ask anyone in the housing industry, he will tell you that July-August 2005 was the time housing peaked. And no, housing stocks did not lead the sector.

As far as the markets are concerned, bear market showed its first sign of arrival in January 2006. IYB was correct in recognizing the change. Following charts provide more evidences.

1. Yield curve is the best measure of liquidity. It went negative in Jan 2006.

http://stockcharts.com/c-sc/sc?s=$TNX:$IRX&p=W&yr=2&mn=0&dy=0&i=t20964482910&r=8326&.png


2. Housing was the leading sector of the last bull market. It turned into bear market in Jan 2006.

http://stockcharts.com/c-sc/sc?s=$HGX&p=W&yr=2&mn=0&dy=0&i=t65469309608&r=2533&.png


3. At the first signs of bear market, large participants reduce their high-risk (high-beta) exposure. Here are three charts that show it happening from Jan-Apr 2006.

http://stockcharts.com/c-sc/sc?s=$SOX&p=W&yr=2&mn=0&dy=0&i=t12792458894&r=2656&.png

http://stockcharts.com/c-sc/sc?s=$NDX:$SPX&p=W&yr=2&mn=0&dy=0&i=t46359844426&r=6449&.png

http://stockcharts.com/c-sc/sc?s=$RUO:$RLV&p=W&yr=2&mn=0&dy=0&i=t42936802913&r=1017&.png

Every piece of data I looked at suggests that the ship started turning from Jan 2006.


So, where did IYB go wrong? Based on the data I see, it appears that the risk sectors all started deflating from Jan 2006. Also, general public, whom IYB monitored in his sentiment measures, went euphoric between Jan-May 2006 and then gradually lost interest in the markets. One indicator of that is the following stock - a brokerage favored by retail crowd.

http://stockcharts.c...501&r=2602&.png



Instead, a new crowd emerged and carried the market higher from Sept-Dec 2006. It was the gang of hedge fund managers. So, it was a pleasure to see hedge fund component of Mark's sentiment measures flashing red since January. The markets topped in the same time-frame.


So, in summary, this market has been turning for a year now, and latest drop is not surprising, and completely expected, in this bigger context. Now that all components (NDX, SPX, BKX, XBD, SOX, internationals, etc.) are in sync, the bearish movements will continue to get stronger and stronger.

[A-ha]

I never said IYB was wrong about the big picture that time. I was completely in agreement with his topping process but he just couldnt understand the key element in it. The terminal move. I wish he was here posting now, he was always one of my favorites , regardless what happened last time. I would really love to hear his current take on the market.

Edited by xD&Cox, 14 March 2007 - 12:15 PM.

[greenie]

It was the gang of hedge fund managers. So, it was a pleasure to see hedge fund component of Mark's sentiment measures flashing red since January.

January = Jan 2007. That is the beginning of cracks in the final (terminal) rally.

I never said IYB was wrong about the big picture that time. I was completely in agreement with his topping process but he just couldnt understand the key element in it. The terminal move.

Or the 'kill the early bears' rally ? I agree, although I was surprised that NDX went over its May high. I expected NDX would make lower high, SPX/Dow higher high. Good that the markets are not following my wishes .

[briarberry]

(chart for fun value only)


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[arbman]

Whether it is bearish or bullish, I don't care, instead here's how I trade, you have the sector cycles, you have the breath momentum, you have the price cycles, you have the volume patterns, you have the currency and rate movements or the liquidity structure. They will keep doing what they have to do in their own fractal spaces, you have to focus on whichever fractal space has the precedence over the others in the time domain you care to trade.

This is how it is done in the signal processing, this is how the nature works from the atomic energy levels to the cosmic scale, you start with the dominant signal, then you decompose it out to see what's left next or whether they matter at all. The priorities in the financial markets have changed very recently. The cyclical picture, the sector cycles, the breath didn't matter, because the macroeconomy of rates and currencies, or liquidity, changed everything.

This is how the big money decided to play, they wanted to cut the markets at its strongest, whether the internals, sector or price cycles continue to play within this bigger picture is not important at this moment, yes these current dominant forces will rebalance and the market will probably complete its movements in these different fractal scales, but at different price levels, so you might easily go broke by watching only one over the momentum of the dominant ones stubbornly...

What difference does it make if you have a 1000hp speed boat if you are in a waterfall? You will hit the rocks at the bottom, if you just wait until your boat runs out of gas so that you jump out of the boat. That's all I mean, that's why I see any indicator as a tool and refrain from sticking to only one tool, whether based on the cycles, breath momentum or others. People prefer exhausting the statistical power of a winning strategy in trading, it is only a statistical tool though, I find myself limited in such a scope, I rather align myself with the dominant signal first.

In that respect, the major momentum is actually still down, but loosing its strength, the damage is pretty bad already though...

- kisa