Bottom Pickers Galore
Ok, forget about my last post. Let's talk about reality instead of a hypothesis the buyers might step in here. I will know when the buyers step in. There is some buying today but we'll just have to wait and see. Let's talk about something I wrote of in June under the post "Market Sentiment And Why A Trusted Indicator Will Likely Fail". Pavlov's dog. The learned behavior when people are rewarded by buying dips with eventually higher prices. That is, until they are rewarded no more with the onset of a bear market. Who are these people? The bottom pickers.
For the past month, there have been bottom picker after bottom picker telling us the market is oversold and has hit a bottom. Many are respected Wall Street personalities and newsletter authors and many are deer-in-the-headlight mutual fund managers who appear to use a Ouija board to make risk management and sector allocation decisions. The smart ones have only been jerked around a few times and now they are "in cash" with their shorter term trading decisions. That's a secret code word for "I've screwed up and rather than screw up again and lose even more of my client's money, we'll just hang around and wait for a bottom". That is fear of trading and lack of conviction in their models. It is a common psychological problem in all but sociopaths. (Yes sociopaths make great traders. More of that some other time.) When you lose money on a trade fear of making a new trade develops so you sit back and wait awhile while you eat a "wish" sandwich. It's called avoidance. You learned it as a kid when you stuck a paper clip in the electrical outlet or put your hand on a hot stove. You have an unpleasant experience and you retreat from such experiences. Hence, trading fear.
Time for them to hire a trading coach because in the mean time they are missing all of the short sales opportunities and generating underwhelming returns. I'm sure clients are probably wondering why they are paying for advice to be in cash when stocks are imploding. They should be short! This situation is especially true with equity hedge funds which are supposed to be sophisticated enough to be long/short. Frankly, that's what hedged loosely means yet most are simply hiding behind the guise of being mostly long funds not any different than the average mutual fund. But, then again, mutual funds don't get 2% fees and 20% of the profits. So, why not open a hedge fund and basically be long only and get the 20% of the profits mutual funds don't get? Greed is good. All of this likely means their trading algorithms are weak, they are likely long term underperformers as managers and a sign that anyone with a desire is now a hedge fund manager. As much as I disagree with some of Jim Cramer's advice, I'd rather have him as a hedge fund manager because he appears ruthlessly willing to make trades. And, as the old adage goes, showing up is half the battle.
More on the bottom feeders. Late last week a mutual fund manager on a financial channel said he liked Illinois Tool Works, emerging markets and AMD.
Now, let's be fair. AMD has only lost about 65% of its value yet they liked it before it lost 65% of its value so they are bathing in blood. How about paying for that advice? Hell, I can lose money for free. I don't need to pay a fund manager for such an atrocious call. You could all live with a 65% loss if you purchased earlier in the year when the bulls were telling you to load up the truck. (That isn't a question, hence no question mark.) AMD just shot through a lot of congestion near 97, 02 and 04 tops in the stock. Will it quickly recover and find support at 21ish? Illinois Tool Works, well, that chart doesn't look so bad. If you were smart enough to buy it at the exact market bottom in early 2003 or late 2002, depending on the index you were watching, you are up about 60% still as it has only dropped about 20% in the past few months. But, buying any time other than that in the last eight years means you are likely up alot less than that and have taken alot of Alka Seltzer during that time frame. Emerging markets, well, we've talked about what I think of emerging markets. Many are in bear markets already defined as being down greater than 20% for some period of time. I'd rather commit seppuku than invest in emerging markets right now.
Now, I see a few days ago respected technician Rick Suttmeier is out calling on a buy of the semiconductor stocks. To quote Rick, " My model assumes that when stocks decline to quarterly, semiannual and annual value levels, bad news has been factored into share-price weakness. There certainly has been plenty of bad news lately in tech stocks, which may make it difficult to believe that now is a time to buy, but that is what my model indicates."
Using such a level of logic would have meant buying homebuilders about 50% higher than here and you'd have a blood bath on your hands. Additionally, using said methodology would have meant you would have bought the Nasdaq when it made its first quarterly low in 2000 only to suffer a decline of 80% over the next few years. I guess using such a method makes marginal sense in a bull market. Yet, are we in a bull market? The semiconductors are in a bear market using the generally accepted definition of a bear market. Why would you want to buy just because a stock or group of stocks makes new lows? Maybe Rick knows something I don't but I wonder about all of those on Wall Street who have made decisions counter to what my models were telling me. Maybe I need a new career. Yo Rick! Semiconductors are down another 5-10% since your bottom fishing expedition.
Now, let's be fair. Rick is a very sharp man. I don't know much about his work but he may be vindicated eventually. I'm simply trying to make a point. To catch a falling knife is a dangerous game without any supporting evidence that the big money is accumulating for a rally.
Have a great weekend!
For the past month, there have been bottom picker after bottom picker telling us the market is oversold and has hit a bottom. Many are respected Wall Street personalities and newsletter authors and many are deer-in-the-headlight mutual fund managers who appear to use a Ouija board to make risk management and sector allocation decisions. The smart ones have only been jerked around a few times and now they are "in cash" with their shorter term trading decisions. That's a secret code word for "I've screwed up and rather than screw up again and lose even more of my client's money, we'll just hang around and wait for a bottom". That is fear of trading and lack of conviction in their models. It is a common psychological problem in all but sociopaths. (Yes sociopaths make great traders. More of that some other time.) When you lose money on a trade fear of making a new trade develops so you sit back and wait awhile while you eat a "wish" sandwich. It's called avoidance. You learned it as a kid when you stuck a paper clip in the electrical outlet or put your hand on a hot stove. You have an unpleasant experience and you retreat from such experiences. Hence, trading fear.
Time for them to hire a trading coach because in the mean time they are missing all of the short sales opportunities and generating underwhelming returns. I'm sure clients are probably wondering why they are paying for advice to be in cash when stocks are imploding. They should be short! This situation is especially true with equity hedge funds which are supposed to be sophisticated enough to be long/short. Frankly, that's what hedged loosely means yet most are simply hiding behind the guise of being mostly long funds not any different than the average mutual fund. But, then again, mutual funds don't get 2% fees and 20% of the profits. So, why not open a hedge fund and basically be long only and get the 20% of the profits mutual funds don't get? Greed is good. All of this likely means their trading algorithms are weak, they are likely long term underperformers as managers and a sign that anyone with a desire is now a hedge fund manager. As much as I disagree with some of Jim Cramer's advice, I'd rather have him as a hedge fund manager because he appears ruthlessly willing to make trades. And, as the old adage goes, showing up is half the battle.
More on the bottom feeders. Late last week a mutual fund manager on a financial channel said he liked Illinois Tool Works, emerging markets and AMD.
Now, let's be fair. AMD has only lost about 65% of its value yet they liked it before it lost 65% of its value so they are bathing in blood. How about paying for that advice? Hell, I can lose money for free. I don't need to pay a fund manager for such an atrocious call. You could all live with a 65% loss if you purchased earlier in the year when the bulls were telling you to load up the truck. (That isn't a question, hence no question mark.) AMD just shot through a lot of congestion near 97, 02 and 04 tops in the stock. Will it quickly recover and find support at 21ish? Illinois Tool Works, well, that chart doesn't look so bad. If you were smart enough to buy it at the exact market bottom in early 2003 or late 2002, depending on the index you were watching, you are up about 60% still as it has only dropped about 20% in the past few months. But, buying any time other than that in the last eight years means you are likely up alot less than that and have taken alot of Alka Seltzer during that time frame. Emerging markets, well, we've talked about what I think of emerging markets. Many are in bear markets already defined as being down greater than 20% for some period of time. I'd rather commit seppuku than invest in emerging markets right now.
Now, I see a few days ago respected technician Rick Suttmeier is out calling on a buy of the semiconductor stocks. To quote Rick, " My model assumes that when stocks decline to quarterly, semiannual and annual value levels, bad news has been factored into share-price weakness. There certainly has been plenty of bad news lately in tech stocks, which may make it difficult to believe that now is a time to buy, but that is what my model indicates."
Using such a level of logic would have meant buying homebuilders about 50% higher than here and you'd have a blood bath on your hands. Additionally, using said methodology would have meant you would have bought the Nasdaq when it made its first quarterly low in 2000 only to suffer a decline of 80% over the next few years. I guess using such a method makes marginal sense in a bull market. Yet, are we in a bull market? The semiconductors are in a bear market using the generally accepted definition of a bear market. Why would you want to buy just because a stock or group of stocks makes new lows? Maybe Rick knows something I don't but I wonder about all of those on Wall Street who have made decisions counter to what my models were telling me. Maybe I need a new career. Yo Rick! Semiconductors are down another 5-10% since your bottom fishing expedition.
Now, let's be fair. Rick is a very sharp man. I don't know much about his work but he may be vindicated eventually. I'm simply trying to make a point. To catch a falling knife is a dangerous game without any supporting evidence that the big money is accumulating for a rally.
Have a great weekend!
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