Saturday, July 05, 2008

Fear, No Panic, at the Market Disco


The Dow has been moving to bear market lows and the number of NYSE common stocks making fresh 52-week lows has taken out its March peak, but so far investors seem to be seeing this as more credit-related sin than tragedy. I've mentioned in the past that there have been spikes in traffic on this blog at recent intermediate-term lows (August, November, January, March). No such spike has yet occurred during the market drop.

OK, maybe it's just summer doldrums in blog traffic. Maybe my readership has deserted me at the altar of the blogosphere. Still, let's face the data with a sense of poise and rationality. As the chart above notes, the American Association of Individual Investors poll has also shown spikes at those prior market bottoms. We're now seeing an elevation of bears in the poll above the 50% level, but the bearishness is more muted than in January or March.

We're also not seeing the January or March levels of bearishness in the equity put/call ratio, and surely no panic has hit the disco in the VIX, which remains below the 30+ level seen at those prior market lows.

Perhaps we'll yet successfully test the March lows in the S&P 500 Index and, technically we can be saved and pour the champagne. For now, however, I note the continued decline in the advance-decline line of NYSE common stocks to new bear lows and the continued decline in the cumulative NYSE TICK and I'll stick with poise and rationality: my door remains closed.
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8 comments:

TeamLBR said...

I am relatively new to the markets and don't have an opinion on direction right now, but I do find it a bit unnerving that EVERY blog I review is extremely bearish.

Is there any truth to the adage that the market tends to turn bullish when it's least expected?

Firebird said...

Maybe my readership has deserted me at the altar of the blogosphere.

Well, you haven't sacrificed any goats lately, so... ;D

Thank you for the indicator review, Dr.

Jorge

CharlesTrader said...

We loyal few are still here.

You are correct in the fact that we have not seen panic selling yet. Just not a lot of buying.

Charles

Q said...

I think the panic will start this as people hiding in Oil, and other commodities get hammered as I did last week (My coal stocks were hit hard but I believe more to come, as Arcelor Mittal news (friday) bad for metallurgic coal). Terrible enviornment to be long, earnings falling, interest rates can't go down, dollar trashed and inflation rising.

Marc said...

One thing for sure is that cash is accumulating on the sidelines. Cash that is losing value to inflation. When oil prices fall (and other commodities too), we should see a significant short covering rally. I don't know anyone who's investing in real estate right now and let's face it, the growth is in the growth companies, ie Nasdaq large caps.

Marc

Brett Steenbarger, Ph.D. said...

A READER ASKED ME TO PASS ALONG THE FOLLOWING COMMENT:

With oil at 145, with a Fed chair that spoke publicly about seeing no housing crises looming, in 2005-2006!, and now speaks of seeing signs that inflation is beginning to moderate, even as inflation is accelerating!, and they are not even accounting for the very inflation he says he sees signs of moderating!, with a Secretary of the Treasury that perpetually speaks of a strong-dollar policy, while the dollar declines perpetually!, and a president that parrots the same, and, when congress, after learning the hard way not to allow the president another free-pass at yet another war declaration, and the president is now trying to do an end-run, before his term expires, and saddling the US with yet another war we can ill afford, by having Israel start it, and by default dragging the US into it...is it any wonder the markets are in 'water-torture' mode?

In short, the ineptitude of our collective group of leaders, in their respective official capacities, and the current overall conditions, I have over the past several months, and more so lately, had a sense of impending calamity, ala 1987 style.

Interestingly, it could be argued that the current rhetoric of 'strong-dollar' policy has in a way been accurate...it is a wonder it is still as strong as it is, so on a relative basis, one could say they have been correct, and the dollar is strong. Sad indeed.

I am of the opinion that this administration has gutted this economy, and the end is not yet in sight.

Brett Steenbarger, Ph.D. said...

Hi Team LBR,

There are certainly more favorable historical expectations following periods of great weakness/bearishness compared with other periods. My concern, however, is that--to this point--the lower prices have not been attracting sustained buying.

Brett

Brett Steenbarger, Ph.D. said...

Hi Firebird,

Thanks, Jorge; no such sacrifices here!

Brett