Comments on: The Nature Sentiment In Bullish & Bearish Markets http://www.tradersnarrative.com/the-nature-sentiment-in-bullish-bearish-markets-1821.html Freshly squeezed market commentary & analysis Sun, 22 Nov 2009 01:19:05 +0000 http://wordpress.org/?v=2.0.2 by: BourningMarkets http://www.tradersnarrative.com/the-nature-sentiment-in-bullish-bearish-markets-1821.html#comment-34716 Sat, 06 Sep 2008 22:22:13 +0000 http://www.tradersnarrative.com/the-nature-sentiment-in-bullish-bearish-markets-1821.html#comment-34716 Well, as any simple rule, this one is easier said than done. But useful, however. In fact, I realized this when reading your post in "The best of" about sentiment in bearish markets. The rest is more or less obvious: The principle behind seems to me much the same as in any oscillator. Let's say you're in a bullish trend and your stochastic crosses over 80, so you decide to short. You'd better be careful, Flanagan. You're risking a "bullish swang sing", i.e., a final buying panic. At the very least, rise your threshold. The opposite is true in the bearish case: when going long in oversold market, you're risking the final selling panic leg. If not panics, you risk time: the market can stand in a long trendish lateral (bad for bought options). About your question, how do you tell them apart?, if you ask about the sentiment readings, well, it is anyone's task to determine thresholds through visual inspection. In Equity p/c ratio, I have these conventional orientative thresholds as horizontal lines: 0,36 Very overbought 0,50 Overbought 0,78 Oversold 0,92 Very oversold But they are just a quick reference. For example, at this moment, the Equity p/c chart suggest that 0,6 is a good place to look for shorts. The chart since 2006 also illustrates very well the abovementioned principle. Only a brief touch to the oversold threshold used to be enough to trigger a good bullish reaction. Then you compare that behavior with the awful one in Q1/08, where multiple very oversold readings were needed before a rebound was in order. As usual, the points transition from bullish to bearish and viceversa is not easy and you'll need other tool-s. i.e., the only "tool" that a friend of mine and investor here in Spain needed to know to tell it was what was that messy "Countrywide" he had heard something about in the news, back in mid-07. He called me to ask, and soon after I began to explain, he almost hanged the phone to call inmediatly his broker, mumbling about "bad business, read Galbraith about the 29, it started with a real state crisis, bad business" and the like. And he was timely right, indeed. Since then, all we have learned about the letter soup (CDOs, ARMs, etc etc and, specially, CDS) has only confirmed and increased our alarm. While the "White Knights" have now more resources and a more proactive attitude than in 29, the problem is also a monster leveraged credit bubble. Finantial sofistications. The Big Deleveraging is proceeding (check Mish Shedlock's, Roubini's RGE Monitor, etc). And we'd better pray that CDSs system don't crash. Wouldn't funny. http://www.safehaven.com/showarticle.cfm?id=9497 Hoping this is useful, as for sure your blog is. Saludos desde Madrid. Well, as any simple rule, this one is easier said than done. But useful, however. In fact, I realized this when reading your post in “The best of” about sentiment in bearish markets. The rest is more or less obvious:

The principle behind seems to me much the same as in any oscillator. Let’s say you’re in a bullish trend and your stochastic crosses over 80, so you decide to short. You’d better be careful, Flanagan. You’re risking a “bullish swang sing”, i.e., a final buying panic. At the very least, rise your threshold. The opposite is true in the bearish case: when going long in oversold market, you’re risking the final selling panic leg. If not panics, you risk time: the market can stand in a long trendish lateral (bad for bought options).

About your question, how do you tell them apart?, if you ask about the sentiment readings, well, it is anyone’s task to determine thresholds through visual inspection. In Equity p/c ratio, I have these conventional orientative thresholds as horizontal lines:
0,36 Very overbought
0,50 Overbought
0,78 Oversold
0,92 Very oversold

But they are just a quick reference. For example, at this moment, the Equity p/c chart suggest that 0,6 is a good place to look for shorts. The chart since 2006 also illustrates very well the abovementioned principle. Only a brief touch to the oversold threshold used to be enough to trigger a good bullish reaction. Then you compare that behavior with the awful one in Q1/08, where multiple very oversold readings were needed before a rebound was in order.

As usual, the points transition from bullish to bearish and viceversa is not easy and you’ll need other tool-s.

i.e., the only “tool” that a friend of mine and investor here in Spain needed to know to tell it was what was that messy “Countrywide” he had heard something about in the news, back in mid-07. He called me to ask, and soon after I began to explain, he almost hanged the phone to call inmediatly his broker, mumbling about “bad business, read Galbraith about the 29, it started with a real state crisis, bad business” and the like.

And he was timely right, indeed. Since then, all we have learned about the letter soup (CDOs, ARMs, etc etc and, specially, CDS) has only confirmed and increased our alarm. While the “White Knights” have now more resources and a more proactive attitude than in 29, the problem is also a monster leveraged credit bubble. Finantial sofistications. The Big Deleveraging is proceeding (check Mish Shedlock’s, Roubini’s RGE Monitor, etc). And we’d better pray that CDSs system don’t crash. Wouldn’t funny.
http://www.safehaven.com/showarticle.cfm?id=9497

Hoping this is useful, as for sure your blog is. Saludos desde Madrid.

]]> by: Babak http://www.tradersnarrative.com/the-nature-sentiment-in-bullish-bearish-markets-1821.html#comment-34715 Sat, 06 Sep 2008 18:28:05 +0000 http://www.tradersnarrative.com/the-nature-sentiment-in-bullish-bearish-markets-1821.html#comment-34715 You hit the nail on the head... one thing though, how do you tell them apart? You hit the nail on the head… one thing though, how do you tell them apart?

]]> by: BourningMarkets http://www.tradersnarrative.com/the-nature-sentiment-in-bullish-bearish-markets-1821.html#comment-34710 Sat, 06 Sep 2008 03:18:22 +0000 http://www.tradersnarrative.com/the-nature-sentiment-in-bullish-bearish-markets-1821.html#comment-34710 In bullish markets, forget the bullish readings, but long the bearish ones. In bearish markets, foget the bearish readings. but short the bullish ones. In bullish markets, forget the bullish readings, but long the bearish ones.
In bearish markets, foget the bearish readings. but short the bullish ones.

]]>