The rally since June 4 has been called “the most hated rally” and “the rally that nobody wants”. Sound familiar? It should as each rally promulgated as a direct result of Monetary Stimulus (free money for Wall Street) was similarly labeled.
Since each version of QE resulted in “oodles” of gains for investors and not so much for the overall economy, markets have again taken a page out of the Pavlovian Handbook that says financial assets will rise because of more free money. And why shouldn’t they rise? All those trillions are systematically designed to boost asset prices and therefore confidence. And the money stays locked in the closed loop of the financial system, never to bleed into the real economy, save higher commodity prices. And higher prices for assets are seldom a problem. Clearly markets are the main policy tool of government planning in this administration.
After three years and a 100% market gain with little economic results to show, you’d think they’d try something different? Not a chance, and why should they? There is little volatility, little fear, few sellers with the market at post crash highs. The “public” knows just one thing; that OBAMA IS THE MAGIC PRESIDENT THAT MADE THE STOCK MARKET DOUBLE. Putting my political hat on for a split second, I believe that the only way Obama loses is if there is a stock market crash in October (or his Birth Certificate is a forgery).
Now that the markets are here, most Strategists and Market Prognosticators say the same thing: “Just Follow Price Because Nothing Else Matters.” They are certainly correct for some period of time. And the public doesn’t care to chase because most don’t have money to invest other than the ones lucky enough to be working at our great corporations and who get matching funding in their corporate 401k’s. They buy stocks whether they like it or not.
And if you want to examine some of the technical or fundamental criteria used for investing you’ll find that many are at or near historic or extreme levels. Imagine this, both bearishness and complacency are BOTH near record highs! Is this logical? Even with the warped logic of the markets? All logic, except price, must be thrown out the window in this time of free money for markets. The data, the historic norms, common sense and logic, all discarded. That is the only way to function in this environment. Or you can just watch the madness and protect your profits.
I’ve said that in each month the markets spend 10 days up, 10 days flat and experience one day of terror. This is what we’ve been programmed to expect and so we trade accordingly. And all the known issues are not a problems simply becasue they are known. Until they are a problem. Then what?
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I think you are presenting a paradox, here. The stock market will only crash if people think Obama is going to be re-elected (just as it melted down when he was elected the first time).
If people think Romney/Ryan are going to take over, the market should at least have a douse of euphoria (which will likely end in a “back to reality” pullback soon after).
What we’d need, for your scenario to win out, would be Obama seeming to “clinch it” a week before, quickly followed by une grande flushe!
__________
“I believe that the only way Obama loses is if there is a stock market crash in October”
What if one happens in September?
Then the dip will be quickly bought and forgotten about.It’s gotta be right before the election…
That’s why Romney picked the latest great white hope – Ryan, so his austerity words will crash the markets & he can come into power. Romney is nothing if not cunning, deceitful, devious, unscrupulous.
Jeez if you call Romney deceitful what do you call Obama….Al Capone, Frank Nitty, Bugs Moran? All Chicago crime figures. Obama the child of the dead crime bosses.
Got an email from “John Jagerson” “[email protected]”
Trade Like George Costanza!
Fellow Trader,
No matter how many times I see reruns of the old Seinfeld show, I still get a chuckle.
The other night I caught one of my favorite episodes; the one where George Costanza — the consummate loser if there ever was one — decides to turn his life around by “doing the opposite” of what he’s always done.
The die is cast when he walks up to a beautiful woman and — instead of trying some old, tired pick-up line — tells her: “My name is George. I’m unemployed and I live with my parents.”
George, of course, gets the girl and finally sheds the “loser” label — at least for that one episode.
What you could learn from George
I’m not calling you a loser, but I do know from experience that most traders would make out a whole lot better in the long run by doing the opposite of what they’ve always done.
#1. Most traders I meet don’t have a plan. They tend to fly by the seat of their pants and end up wondering why they’ve crashed and burned again.
Gee, Apple’s going up, let’s trade that. I’ve got a hunch about Goldman Sachs. Jim Cramer likes such-and-such. No plan often leads to over-trading. People get their position sizes all out-of-whack, and they get overwhelmed by their losses.
Take a hard look at yourself as you read this. If you feel qualified to trade options and simply want to try the opposite, more disciplined way, I’ll show you exactly how a little later in this letter.
#2. Most traders shoot for the moon. Greed gets in the way of common sense.
Sure, 1,000% winners sound sexy – that’s why everybody and his brother promote options trading from that angle. But you can be at least 10-times more successful if you do the opposite and shoot for smaller profits. You can still enjoy the occasional money-doubler (or tripler), but 30%-80% gains are more often — and more safely — reached.
#3. Most traders don’t buy right. That puts you immediately in the hole.
Once you have a plan — a bona fide trading strategy — 70% of a trade’s success is entering it at the right price. What do most people do? They get caught up in the moment — and the dream of making a killing — and often chase prices higher. As I’ll show you, taking the opposite approach immediately puts you ahead of most would-be traders.
#4. Most traders don’t sell right, either. Paper profits can disappear in a flash.
That’s the other 30% of trading success: You must manage your winners. In other words, don’t try to squeeze an extra 10% out of a trade, only to see it turn against you a week before expiration.
No one ever goes broke taking profits. So please, do the opposite of what most traders do — learn how to manage your winners to maximize your overall profits.
#5. Most traders pay too much for trading advice. Here’s where my SlingShot Trader service can help you do exactly the opposite…. (continues to give sales pitch)
There was another one talking about pavlov conditioning that I remember at some point I think from a different source!
Pavlov’s Bulls – John Mauldin’s Outside the Box E-Letter
…
Pavlov’s Bulls
by Jeremy Grantham
About 100 years ago, the Russian physiologist Ivan Pavlov noticed that when the feeding bell was rung, his dogs would salivate before they saw the actual food. They had been “conditioned.” And so it was with “The Great Stimulus” of 2008-09. The market’s players salivated long before they could see actual results. And the market roared up as it usually does. That was the main meal. But the tea-time bell for entering Year 3 of the Presidential Cycle was struck on October 1. Since 1964, “routine” Year 3 stimulus has helped drive the S&P up a remarkable 23% above any infl ation. And this time, the tea has been spiced with QE2. Moral hazard was seen to be alive and well, and the dogs were raring to go. The market came out of its starting gate like a greyhound, and has already surged 13% (by January 12), leaving the average Year 3 in easy reach (+9%). The speculative stocks, as usual, were even better, with the Russell 2000 leaping almost 19%. We have all been well-trained market dogs, salivating on cue and behaving exactly as we are expected to. So much for free will!
(and then it continues)
Please provide exact date of that piece. My first mention of Pavlov in my blog on IBC was on 6/22/11.
Wasn’t accusing you of plagiarism, but the other people plagiarizing you.
2011? I thought you mentioned it long before that. Perhaps not. Certainly your blog was the first I heard of it personally.
Unfortunately I goggled it and found that piece created in Jan 2011.
http://www.advisorperspectives.com/commentaries/gmo_12611.php
However, On your ibankcoin blog, the first mention of Pavlov that I found actually was The Fly in April 2010. not the same context, but still.
” Dr Fly says:
April 24, 2010 at 10:25 pm
Not a big technical guy; but I do believe in gap fills. It is a psychological brain fuck, that commands all investors to adhere to, Pavlov style.”
As long as we’re speculating about timing, I think we will see “The 1,000 Day Bull” off the 3/6/2009 low. Their other driver is ego, and these guys are clearly calendar oriented.
Jackson Hole?… Naw, just a bunch of economists schmoozing and feeling anointed in the presence of power.
interesting….
http://ibankcoin.com/flyblog/2010/10/15/clam-talk/
NicTrades says:
October 15, 2010 at 8:58 am
Talking about QE gets more oomf than actually doing it and the market is behaving like BB’s pet pavlov poodles so far.
As someone said this week this market is a colliseum of people with only a few exits.