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Monday, April 21, 2008


dour sentiment

'oldprof' jeff miller links to a fine overview of sentiment compiled by gary d. smith of between the hedges. click through to the short interest chart -- this is almost certainly a distortion created of the growth of the hedge fund industry -- but even more interestingly the survey of hedge fund exposure. strong contrarian evidence! similar views are being regularly expressed at trader's narrative, including an excellent point on IPO issuance.

i can't find the will to disagree with any of this. i do think stocks have put in at least a meaningful intermediate-term low. possibly if unimaginably, it is really the all-clear on the great credit crisis of 2008. it's critical to realize that the low always is unimaginable when it comes -- that in fact the existence of a low point is predicated on the bleakest possibly outlook being dominant. this looks very much like such a time.

rather than simply fire-and-forget, though, i'll be monitoring the outlook as we go. i rather concur with dr. steenbarger at this point -- at or approaching overbought with minor correction probable.

and i'll do that because of a good point made by jim stack that was passed on to me by a friend in conversation. the stock market has managed to trade lower in spite of eight fed rate cuts. the only two precedents on the books: 2001 and 1930. it's generally fatal in my view to lean on "it's different this time" -- but the fact remains that, sometimes, it IS different. one cannot ignore the housing bust and its economic implications as part of a larger leverage bubble. an honest-to-god deflationary unwind is a real possibility here, and if it came to pass a lot of sentiment indicators would be rendered useless. (can one imagine what the consumer sentiment chart of the early 1930s looked like?)


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