Trader’s Narrative

Here is a terrifying interview with Marc Faber, editor of the Gloom Doom & Boom Report. I find it unsettling how calm and polite he is as he lays out the case for an inevitable collapse of the US dollar hegemony and the destruction of our economic system.

And in case you think he is some sort of doomsayer who just now happens to be correct, keep in mind that throughout his lengthy career, he has made some unbelievable calls - both long and short. So he clearly is not a perma-bear of the Howard Ruff variety. The last time Ruff was on CNBC hoarsely growling his ever pessimistic prognosis, I wondered if this was a contrarian signal from the trading gods. With hindsight’s approval we know that it most certainly was.

In contrast, Marc Faber was bullish at almost the exact bottom of the market earlier this year. So while he is a long term bear, he is the rare breed that is actually able to bob and weave, catching shorter term rallies. Listen to the full interview (in three parts) to find out his case for the utter collapse of capitalism as we know it:

Marc Faber Bloomberg Interview: Part 1

Continue reading ‘Marc Faber: Total Collapse Of Our Economic System’

Here is the sentiment overview for this Easter shortened trading week:

AAII Sentiment
This week’s sentiment survey from the American Association of Individual Investors shows 44% bears and 36% bulls. That’s a 7 percentage point change from last week for both camps (a decrease for bulls and an increase for bears).

This is a welcome development because although the market (S&P 500) closed the week higher than it started, sentiment is actually less hopeful than it was. This is just one glimmer of contrarian sentiment and it is a shallow change (at only 7%) but still it is valid. At this point, we’ll take what we can.

Investors Intelligence
In contrast, the survey of newsletter editors conducted by ChartCraft shows little change from last week. Tuesday’s results show 36% bulls and 37.1% bears - putting the two sides equally at odds. In early March, we saw a somewhat polarized sentiment. But as the rally unfolded, both the optimists and pessimists have been slowly approaching each other.

Howard Ruff
The 25% rally this past month has brought out the experts. And for the most part they are now back to their talking points. Take for example, Howard Ruff. He’s decidedly bearish as usual and saying that the recent move is just a bear market rally. He’s looking for hyperinflation and a “toxic” stock market for the foreseeable future.

On the other hand, the spasmodic Jim Cramer has declared the “the depression is over”. Never mind that it was just a few months ago that he asked people to leave the market for the next 5 years. And even shorter still when he promised by a gentleman’s handshake that Mad Money will feature a more rational host. The worst is over! And it is time to become a roaring bull (again). Cue the soundboard. Increase the props department’s budget!

The lesson here is to recognize the inherent bias in every source and to recalibrate what they say based on that. There are very, very few who are as easily bears as bulls and rather than swayed by a bias, rely on evidence based market analysis.

Rydex Traders
Two weeks ago, I mentioned in a similar sentiment overview that the itchy triggered Rydex traders have stampeded to the bull’s side. To put it bluntly, these traders are too excited for their own good and are positioned as they were at previous tops.

ISEE Sentiment
The ISEE sentiment index, which measures retail option traders, showed a consistent level of optimism all throughout this shortened trading week. Although never reaching spike highs (of 200+), the call-put ratio was noteworthy for the elevated plateau it reached. Here are ratios for the equity only ISE sentiment:

• Monday — 169
• Tuesday — 170
• Wednesday — 167
• Thursday — 174

The last time the ISE index spent 4 consecutive days above 167 was late last year, just as the S&P 500 reached a peak in early January 2009.

Follow the link for an update on the CBOE put call ratio (equity only).

Uptick Rule
The SEC is putting out feelers for a change to the rules governing a short sale. It wasn’t that long ago that the uptick rule was removed but there is now a real possibility that either it will be reinstated or some similar protocols will be put in place. From a sentiment perspective, the important thing is what people think about the change. If enough think that it will be a positive, it will be, irrespective of whether it truly is. This is the crazy, self-fulfilling effect that the market can have on itself - in the short term. In the long term, reality always reasserts itself like a wave of ice cold water.

Market Breadth
Persevering readers will remember that we’ve looked at market breadth a number of ways this week. Here’s another: the simple 25 day moving average of the Nasdaq daily advance decline statistics.
Continue reading ‘Sentiment Overview: Week Of April 10th, 2009′

Does anyone still watch CNBC? I mean to actually get information, not for entertainment. If you were watching, CNBC gave us a blast from the past on Wednesday. And if you weren’t, here’s what you missed.

Their guest yesterday morning was none other than Howard Ruff. If you’re unfamiliar with Ruff, he was a huge market ‘expert’ and doom and gloomer way back in the 1970’s. Think of him as the 1970’s version of Nouriel Roubini. Well, that might be a little unkind to Roubini.

Howard Ruff’s major message back then was to buy precious metals and shun equities. And to stock up on canned food to survive a dystopian future. And guess what? he was back on CNBC re-hashing the same 30 year old message:

Had we been in a bull market, you can bet that anyone at CNBC suggesting an interview with Ruff would have been laughed at (or fired). Since CNBC, like all general media outlets, reflects sentiment, take this as a sign of the depth of the doom and gloom out there now. Remember the last bull market? or the bubble years? What kind of guests did CNBC feature then? Was Roubini or Prechter or Taleb anywhere to be found? Now we find Ruff, having dusted off his 1979 book and tacked on “in the 21st century” back in the spotlight.

Just for fun, here’s a graph of the Dow (the same Dow Ruff “wouldn’t touch”) along with the release dates and titles of Ruff’s books (click to make chart larger):

Here’s the transcript of the interview:

CNBC: “Alright, our next guess really needs no intro, Howard Ruff, and we’re glad to have you on, its a… its rare to see you on set. Howe, what do you think investors should do to prepare for the next couple of years?”

Ruff: “Well, that’s my expertise. I’m not interested in telling Congress nor the President, what they should do, they wouldn’t listen to me anyway, so my job is to look into the future and see what’s probably going to happen and tell investors and families what to do to get through this with the minimum amount of damage. And, in fact, to possibly to turn all this stuff into small amounts of money and into real wealth. You can do that.” Continue reading ‘Howard Ruff On CNBC: Contrarian Signal From Trading Gods?’