Wednesday, January 19, 2011

Bulls Are Playing with Fire

Today on the CBOE the equity put/call ratio is 0.51 despite the down day in the market. In other words, the dip is being bought.

That shows that the bulls are complacent and aggressive, which is exactly what we want to see!

I want to see the S&P 500 close below the 10 EMA, which is 1280. Obviously I am not a big technical analyst but I believe that this level is important to other market participants.

If we get that close below the 10 EMA plus a continuation of bullish complacency, I think it will be time to drop the hammer.


Eric said...

Most people would agree that, at the very least, the market is, uhh, overextended.

But the point about beating the bear drum constantly is that you will eventually be right, but only in a 'stopped clock' sort of way. Which is a fair point.

Nervous bulls -- or nervous market neutral types, like me -- might find this a good day to judiciously sell some puts, i.e. in order to take advantage of the buy-the-dippers, who, if that trend holds (?), will show up soon enough.

CP said...

Legg Mason Value is down about 40% since I started this blog in 2007. (The maximum drawdown was almost 75%!)

In contrast, Credit Bubble Stocks has hit it out of the park by correctly predicting the collapse of numerous companies. (And also, getting a variety of longs and capital structure trades right as well.)

If someone was bearish throughout the Great Depression would you have said they were "beating the bear drum constantly"? Or, did they correctly perceive and act on the long-term trend, despite brief departures therefrom?