THE TURD INDICATOR AND YOU – MEMOIRS OF MARKET HIGHS

One really effective indicator of determining when a market run is “excessive,” is to see what type of stocks are outperforming. Let’s go back to summer of 2015. Most of the China internet stocks had doubled in 2-3 months and all the cheap trash stocks were smoking hot. You’d see dozens of them up 20% or more daily. That stat simply measures a specific genre of trader and when those guys are most active is when they’re most confident and comfortable. Why do we care about this genre of trader? Simply put, they’re the least sophisticated type of trader out there. When they’re invested, you’ll want to lighten your load onto them. Ew.

Occasionally, I will buy a stock I deem to be “a topper.” A real brown one. I’ll buy it and when I notice its up a lot, it sets off a signal for me about the market. Earlier this year it was $BLDP. Notice that pop on April 28th it had. Then notice that the $RUT topped on the 28th, starting a 6.5% decline in a few weeks.

Again, I use this to determine near term enthusiasm and a potential start of market weakness. This time around, I am debating buying $PLUG. That’s on the “all-time” turd list for sure.

Got a turd out there you’d put in this category?

Gotta quote the latest work from FatPitch. Only site I frequent for market updates. Actionable and quality information in or about the market is at an all time low. These positioning write ups tell you everything you need to know about the chemistry of the market here. It’s a ‘group-think’ position to be on the sidelines here, and this isn’t how markets unload. This is how they fucking rip.

A tailwind for this rally has been the bearish positioning of investors, with fund managers’ cash in February at the highest level since 2001. Similarly, their equity allocations in February had only been lower in mid-2011 and mid-2012, periods which were notable lows for equity prices during this bull market.

Remarkably, allocations to cash in September are as high as in February and allocations to equities are now even lower. Investors have jumped into the safety of bonds, with allocations rising to a 3 1/2 year high in June and July.  Overall, fund managers’ defensive positioning supports higher equity prices in the month(s) ahead.

Allocations to US equities had been near 8-year lows over the past year and half, during which the US outperformed most of the world. After rising the past two months, allocations fell again to underweight in September. Bearish sentiment remains a tailwind for US equities. European equity markets, which had been the consensus overweight and also the world’s worst performing region, are now underweighted relative to their long term mean.  Investors are chasing the world’s best performing region – emerging markets – which now have their highest overweight in 3 1/2 years.

This chart tells you we are bottoming, even though we are at all time highs. Let that sink in.

I respect the decision to wait it out and buy back in at the highs. If it weren’t for that, I wouldn’t have mapped this all out as well as I did last year when I said a big chase would be set off.

I bought some shit today. Hope you have as well.

I couldn’t find one optimistic opinion on $AAPL into earnings this last quarter. Naturally, the stock ripped higher. I didn’t start getting asked about $AAPL as a long til we got to the $108-$110 area, which is where I booked gains on my earnings trade. Going into their event a couple weeks ago, everyone wanted to buy $AAPL going into the event. Naturally, $AAPL sells off post event like it normally does. I waited til I read my first comment here about $AAPL going much lower, which happened on the 8th. Loaded up on some calls there, and now $AAPL is angry. Seeking revenge on those that own too little.

Here’s a 10 year chart. The trend is already underway.

Sentiment can tough to gauge. Lotta pressure. You gotta rise above it. You gotta harness in the good energy, block out the bad. Harness. Energy. Block. Bad. Feel the flow Happy. Feel it. It’s circular. It’s like a carousel. You pay the quarter, you get on the horse, it goes up and down, and AROUND. It’s circular. Circle, with the music, the flow. All good things. 

There’s a bit more relative strength into this decline today. If you were kicking yourself for missing the dip on Friday, this could be your second chance? Unless you waffle, and if you do, don’t do anything here. We need you to chase the breakout down the road.

I’m running scans here looking for new names at cheaper prices. Having this volatility happen during September expiry week is a bitch, but I am doing what I can to maneuver here and preserve premium in what I have remaining for this month.

I like the action in Retail ($NKE, $UA, $COH) and China stocks today ($YY, $SOHU, $BIDU, $YRD, $WUBA, $ATHM, $VIPS) and aside from names I currently own, I like $FEYE, $CMG, $SSYS, $TEAM.

I scratched out of some $ATW, bought $YRD and some $NQ_F at 4706 just now. $NYMO under -60 today, fwiw.

I left town on Friday, opting not to pay any attention to the chest thumping and trolling that took place over a market sell that nobody truly understood. I just returned to my trading terminal just it time to see most things put back on their shelves and restored to their appropriate places.

I talked about this in my comments section on Friday, but most of the days selling came from these volatility funds unloading equity on Friday. There was about 14b that was sold, and while everyone chased their tails trying to figure who the big seller was, they opted to front run the selling knowing that a Monday gap and sell was a certainty.

With everyone going home short into the hole, naturally we fucking rip higher.

I am just getting back to my office, but wanted to throw up something fresh in order to facilitate new conversation.

See you After Hours.

If you will, analyze this chart for me.

If you are in, where are wrong?

Where should a stop be placed?

What happens next in this sequence? If it does, what’s the target price?

I’m traveling tomorrow, FYI. Curious to read your responses.