When it comes to equity analysts Teun Draaisma is a must-read. The European equity analyst famously called for investors to sell stocks in June 2007 when the markets were flashing a “full house sell” signal. He then flipped bullish in November of 2008 as the markets were pricing in a much more severe situation than Draaisma saw unfolding. He’s one of the few investors who actually got the downturn and the upturn correct and was able to connect the dots between cause and effect. In his latest strategy note Draaisma is saying the rally has gotten ahead of itself and that we’re due to for a correction as good news becomes bad news. In addition to being bearish about 2010 (see here), Draaisma says the better than expected growth in the near-term is putting more pressure on the Fed to raise rates and will lead to tightening measures sooner than most investors suspect:
“The rally since 5-February is nearing its end, we believe. Our thesis is that good growth will lead to tightening measures and struggling equity markets this year, just like in 1994 and 2004. The recent rally was larger than we expected, and in our eyes was due to:
1) there have been no positive payrolls or Fed language change yet (we even saw some loosening rather than tightening measures last week, with the Greek bailout, the ECB keeping its wide collateral pool for longer and the Obama plan for troubled mortgage borrowers).
2) sentiment had turned quite cautious in early February. Nevertheless, we do think the market peak associated with the start of tightening is near, and expect 2010 to show a volatile whipsaw pattern in equities. We expect good payrolls (April 2) and a Fed language change (April 30), some leading indicators are rolling over from multi-decade peaks (ECRI leading indicator for the US, OECD leading indicator for the world), and some sentiment surveys have turned more bullish.”
Draaisma believes the market will decline 11% in the next 3-6 months:
“The 3-6 month outlook: tactical caution. The last 12 months have been characterised by record stimulus and rising economic leading indicators. We think the next 6 months will be characterised by some stimulus withdrawal (as a reaction to good growth in Asia and US), and softening leading indicators. We reduced our equity exposure two months ago. We recommend selling into strength, and we think MSCI Europe will reach 1030 at some point later in 2010, down 11% from here.”
On a longer time horizon Draaisma says the markets remain entangled in a bear market and that investors should not be fooled by the cyclical bull within a secular bear:
“The multi-year outlook: the secular bear market that started in 2000 is not yet complete (pages 11-13). We believe the secular bear market is incomplete for a variety of reasons, including that banking crises and bailouts tend to precede debt crises; that the amount of debt has not been reduced yet (it only changed hands to the government); that equity valuations never reached end of bear market levels; and our historical analysis that equities tend to struggle for longer in the aftermath of secular bear markets. When the next earnings recession hits, perhaps in 2012, we expect equities to complete the bear market that started in 2000.”
Draaisma’s outlook isn’t exactly consensus, but then again, it never really has been. And that makes his research a breath of fresh air on Wall Street.
Source: MS
Here we go again! Futures getting gunned overnight. This is like stealing candy from a baby. UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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Is this all short covering? Obviously it’s not news based buying because nothing happens overnight. So who is buying? Are there really any shorts left out there? It seems like we all know the banks are driving this market up. UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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The Fitch comments re. Greece and OBAMA TELLS NEW CHINA ENVOY US WANTS TO WORK WITH CHINA TOWARD ‘SUSTAINED AND BALANCED GLOBAL GROWTH’ ..WANTS TO ‘FURTHER DEVELOP A POSITVE RELATIONSHIP WITH CHINA’ – WHITE HOUSE
helped with the bid in the afternoon UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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I would have to agree. The markets are way over bought. When I see all the hype on CNBC it only makes me believe all the more that there are better business opportunities than being long this market at the moment. UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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Ok, I have to admit something – This morning I sold EVERYTHING I could and went to cash. This includes Energy and all long ETFs and Mutual Funds. I still have some frozen stock in my Bank, which I’m not TOO worried about – but I know that’s going to give some pain. Perhaps may have to set up a USD/EUR hedge and perhaps some XLF puts.
There’s too much stacking up now. I’m not waiting for the jobs number tomorrow – we all know the REAL numbers. Not to mention it just so happens to be around a year since the bottom of the market – when millions of jobs were shed. As those individual’s unemployment benefits expire, they get moved off the unemployment rolls and all of a sudden it appears as if the jobless numbers have decreased when in fact, they’ve worsened significantly from a consumer standpoint.
Let’s add in the 10 or so companies that have already stated charges in the range of 10-15bln based on Obamacare + cutting existing benefits + 10s of thousands of layoffs – this is not good at all. Finally, lets not forget that the states are dying – their budgets are blown to bits and creative account along with derivative “plugs” and short term debt rolls are being used – sound familiar (ie. straight out of the Lehman playbook).
I’m not going short yet. I’m sitting in cash. In fact, I’d prefer to pick up 10 and 30 year USTs once they start hitting double digit yields. However, being in cash means I’ll have a little money on the side to play with. Right now, I’m targeting the cubes; with a 90% jump off the lows, these guys are bound to fall first. Oddly, I’m not to afraid of the banks – I think they’re all in the know, especially with Goldman’s bull trumpeting. That’s a sure sign to sell.
I am still interested in Nat Gas. I like where its at right now and would love it 30% cheaper. Trucking and potentially shipping nat gas legislation is around the corner if you ask me. Not to mention 2012 long derivs (calls, premium futures, etc) look suspicious to me.
Oh, and my dentist told me the other day he was thinking about getting into the market because it was looking strong. UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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chris Reply:March 30th, 2010 at 6:52 AM
i recently had my financials stopped out; i keep very tight stops. i decided to go back into my financials through calls, exposing only premium to risk. i have done real well with my financial stocks and expect to do so with my financial calls, but my decision to park my profits and only go back in with calls is somewhat in line with the general tenor of this thread. i usually don’t like to play with puts and calls except as a hedge, but this time it seemed wise to expose myself long only with calls. UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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In Banking Reply:March 30th, 2010 at 7:07 AM
I love playing the (long) put/call game. You know at the outset your total loss. Lots of traders actually use puts and calls to enter positions, exercising when they want the stock. This is especially relevant on the long put side/short call side as you’re not paying a borrowing fee for shorting the issue…..nor do you have to locate the stock to short it. Of course, this might end up being reflective in a higher premium but its worth the peace of mind.
I personally love the “free hedge” (straddle) play on a long position – it’s like creating your own dividend while hedging risk if you’re good enough at it. The only problem with USO is that the option chain is shit and its nearly impossible to set this up well. A lot easier with the index ETF options. The cubes used to be my favorite stomping ground.
Of course, the trading rules when working in a bank are the worst (and mine are slightly more lenient than most). 30 day hold period is murder. Not to mention if you setup a straddle hedge, the 30 day period on THAT begins the day you put it on (and that’s assuming you do both legs the first day). The only unrestricted markets are – opened ended mutual funds, bonds, equity indexes (including options), futures, currencies, commodities and forex. The worst trap is the restricted list – you can get an equity trade approved (yep, have to file for approval for each restricted product) by two people – direct manager and compliance. Then when it comes time to sell, you can find your stock all of a sudden on the restricted stock list (because the bank has somehow become involved with the company) and you’re locked in. Not as big a problem for me, but in the US banks, it happens all the time. UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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In Banking Reply:March 30th, 2010 at 7:09 AM
Ugh, I mean option spread….its still early. UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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In Banking Reply:March 30th, 2010 at 6:56 AM
Locked in 53 and 57% profits on the USO trades and now comfortably in cash. Whew, I feel like a monkey is off my back. Woke up 3 times in panic last night. Its not something completely uncommon, so I’ve taken to forcing out reasons why I should panic. When the list started growing and growing, I couldn’t resist. I got the same feeling in late 2007, went fully into Bond funds and locked in 11% that year and -0.8% in 2008 (got silly trying to call the bottom mid-year and lost my 7% gain).
There’s an ominous feeling out there today. VIX is way to low. Plus a completely superstitious indicator of mine – it’s raining heavily out. Don’t ask me why, but lots of people short a day like this. UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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chris Reply:March 30th, 2010 at 7:03 AM
just a little tell for me is C. market reacted very badly to concept that uncle will be dribbling out some $7B of C…if little ole C can climb back up that hill, that means that the market is more resilient than even i think it is…hey in banking, shouldn’t you be in working? UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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In Banking Reply:March 30th, 2010 at 7:17 AM
Hahaha, nice. I am working. I’ve been here since 7:45. I’ve sent out 10 emails, set up 2 machines, wrote three data integration scripts and am currently working on a specification for a big confirmation project.
In IT we get a little more leniency. We have projects (or loosely defined requirements), we put together specifications and estimations of time it will take to develop and then we’re on our own (with the occasional status update). This number must be padded a bit (I also support about 15-20 in house applications and systems and God knows how many users) but when there’s no support to do, there’s a little more free time.
Besides, I just wanted to put up the red flag for those interested. I’m up over the market like 40% from 2006 onward so why not share the knowledge… UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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TPC Reply:March 30th, 2010 at 10:32 AM
Everyone loves the market AFTER a 70% rally…. UA:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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In Banking Reply:March 30th, 2010 at 1:11 PM
Yup, I smiled and said – oh really, that’s interesting…
Then I sold. Couldn’t keep lying to myself – my less risky stuff has really small gains on the year but its better than sizeable losses. Slow and steady wins the race. UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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The rally in the SPX is certainly long of tooth. This Index is currently pushing upwards at 1175, and 1175-1180 is an important resistance area. Also, the number of issues above 50 week moving averages is now close to a maximum at 88.8%, and relevant oscillators are either turning down or at tops. Oscillators for the McClellan Summation Index are turning down, or at tops. VIX is at a complacent, two year low, waiting for some unexpected event to spring it to life. Rate of Change for the ratio of SPX/Nom. GDP is above 15%, a level at which market tops tend to form. If the rally tends to persist in the short term, we should watch for Wednesday, April 14, which is an important cycle day and could be consistent with an important SPX top. UN:F [1.8.6_1065] please wait... Rating: 0.0/5 (0 votes cast)
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mkts top on good news; just got my confirmation sell signal; don’t know if it’ll be sideways or down, but I’ll take the 11% he’s forecasting… UN:F [1.8.6_1065] please wait... Rating: 5.0/5 (1 vote cast)
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This has been a planned short squeeze by very strong funds & US government
http://blog.beyond-trading.com/2010/03/trading-etf-fas-on-the-long-side-in-2010.html
I sold FAS near $100. Good luck UN:F [1.8.6_1065] please wait... Rating: 5.0/5 (1 vote cast)
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