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Back With A Bearish Vengeance

Back With A Bearish Vengeance

Back With A Bearish Vengeance

by MoleMay 11, 2011

Well I (Volar) have been gone for a bit (mostly work, some vacation). It is nice to get away from the tape- here is a post worth your time.

As for my previous swing trades…. a bearish SPX hammer and poor RUT follow through swayed me to just utterly unwind all my longs. All that being said, sure is nice to have intra-day algos trade the tape while your gone 😉

Here is a superb video; it compliments my post today. Short-term things are mixed (aka no change in sentiment- still divergence), but L-T, only zerohedge may like the exit strategy.

Most of the charts below relate to NYSE margin data. This data is for the last week ending in March…. I will keep you all abreast for April data coming in the next week or two.

For definition purposes:

NYSE margin data is money that is trading on margin (leverage).

So there are 3 pieces to the equation:

(a) Margin Debt. This is the amount of money investors have on margin (does not include futures, just equities on NYSE)

(b) Account Security Credit (account credit balance). This is what is not debt, can be securities in holding, but is not cash.

(c) Free Cash Credit. This is the amount of actual cash.

Therefore, A – B= Net Security Debt (or net debt).

Therefore, A – B – C = Net Equity (which is negative at the moment).

First, total dollar margin debt (NYSE).

Bullish! sarc

This just goes to show how many are playing on margin- sure this time will be different 😉

Chart 2 is Net Debt (NYSE), or Total Margin Account Debt – Margin Account Credit.

Bullish! sarc

So apparently ZIRP and POMO have forced the crowd to go in….

Chart 3 shows net account negative equity. The math is simple. Margin Debt – Account Credit – Free Cash. Or simply put net debt – free cash. This is probably the best indicator in terms of true speculation.

Bullish! sarc

Here is another longer-term way of looking at how much money has come into the market- 3 yr change in net debt.

Bullish! sarc

This shows the same thing… LT we have a problem.

Ok last investor margin chart to beat a dead horse.

Bullish! sarc

So this goes to show that cash is on the sidelines 😉

Now on to the COT. Here is the NAZ. Now this is not exactly sentiment, but money is crowded- especially when you consider that the US$ COT is unchanged form a month ago! Remember COT is commitment of traders or the number of speculators in the future’s market, which is not the same as the NYSE equity data above.

Here is NYSE Group + Nasdaq short interest, it is low from a longer-term stand point. HOWEVER, no squeeze yet.

Remember how I said there was no call buying on the new high…. Ya we may have a skunk folks.

Ok on to the Caveats for short-term trading.

The AD line is still making new highs- and historically this starts to break down in wave 5.

(actually bullish- no sarc here)

And a short-term view of that….

Another similar indicator would be the summation- break down our up?

Other thoughts:

Trading is not investing. If you are investing, look at my data and PIMCO’s 120B cash build+ PIMCO’s 140B slump on US treasury holdings. Zerohedge did a nice piece on that… The question of PIMCO raising cash is it bullish stocks? I have no idea- mixed feelings. If yields are up, risk is on, but that may cool off margin money?

Moreover, we know the trade is crowded but 2 questions: (1) can margin money get more extreme? (2) does smart money wait for a massive liquidity withdraw before they take profit?

POMO- record levels, but ends in June.

I dont know what happens, but we must consider how the market will trade without new money…will smart money exit before hand or force the Fed to print more?

And one seasonality chart- just for perspective- or to make things more confusing.

This just shows that if there is a rally June is better than May (FWIW).

The good part about this sell-off is that I don’t see bears running to the headlines for justification of poor decision making- maybe buying has started to dry up?

Look at RUT on a longer-term basis…

So to the bottom line: bear(ish). LT things look great for the bears, but the short-term, things need to align. Or in other words, be patient and let the tape come to you (molecool).



About The Author
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.