Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter


Stock Market Barometers, Thermometers, and Recency Bias

Stock-Markets / Stock Markets 2018 Nov 02, 2018 - 03:56 PM GMT

By: The_Gold_Report


Precious metals expert Michael Ballanger discusses recent moves in the stock market. As the month of October fades away and is replaced by the month of November, which represents the start of the "best six months of the year" for stocks, traders are all sharpening pencils, firing up slide rules and priming keyboards in anticipation of making some very bold calls on the pending "bottom" for the current market bloodbath. This weekend alone, the blogs and email inboxes are stuffed with glowing predictions of an imminent upturn and the number one reason for this is apparently the "incredible strength of the U.S. economy."

There used to be a famous newsletter writer/speaker/technician called Joe Granville who was universally hated by fund managers and analysts because he constantly referred to them as "chimps" and regularly had a trained monkey dressed up in a three-piece pinstripe suit on stage with him pretending to be reading the Wall Street Journal during speaking engagements. Granville often quoted Charles H. Dow as originator of the most-important term in stock analysis and the source of most serious portfolio errors over time: "The stock market is a barometer, not a thermometer" was his memorable phrase and especially today with so many CNBC analysts crediting the U.S. economy for stock market resiliency. From the book:

"Remember the difference between the thermometer and the barometer: the thermometer records the actual temperature at the moment just as the stock ticker records actual prices. But it is the business of a barometer to predict.

In that lies its great value, and in that lies the value in Dow Theory. The stock market is the barometer of the country's, and even the world's, business, and the theory shows how to read it."

As you all know, I credit the incredible stock market bubble as having two major causes: the first is the injection of trillions upon trillions in fantasyland liquidity into the financial system after 2008, and the second is the actions of the world's central bank trading desks which most times, if not all times, are simply the money-center banks around the world taking instructions from the policymakers. However, the MSM messaging services has every analyst in every medium pointing to the current temperature outside as proof positive that winter simply won't arrive and that a crashing barometer does not forbode a storm on the horizon. As a boater who navigates the Great Lakes, ignoring the barometer usually results in "bad things happening" and I would urge all of you to use the current market blowoff as a portent of those same "bad things happening." It is not "different" this time.

The worst fourth-quarter performance in recent memory was 2008 (sub-prime crisis), where the S&P dropped 38.5%, with other notables being 2002 (post 9/11 blues) and 2001 (dot-com crash). Those markets were basically without the invisible hand of intervention; stock prices were controlled by human emotion rather than elected officials and computer algorithms. The scary part about 2018 is that today there IS intervention and there IS the invisible hand and yet 75% of the S&P 500 is now officially in "correction territory" verging on full-fledged bear markets. The FANGS have one general left (Apple) to report earnings next week, and if it cannot avoid the "Sell the news" virus that crushed Netflix, Google, and Facebook (and Amazon), then 2018 will be up there in the chart when I post it in February with updated numbers. The daily RSI for the S&P is a hair above 30 but the weekly RSI is still over 36 so considering that in 2008, it took a minus 20 reading to even resemble a bottom, it took until 2009 March for the bear cycle to run its course.

Also, as bad as 2008–2009 was in terms of percentage decline and technical damage, it only lasted from the summer of 2008 until March 2009, so its nine-month duration was a picnic compared to the slow water tortures of 1973–1974 or 1981–1982 and even 2001–2002. The problem remains that most market participants have no recollection of bear markets because they are simply too young and are victims to a form of cognitive bias called "recency bias," where they are making investment decisions based upon relatively short-term historical time frames. This is what I glean from the number of interviews out there and the younger the speaker, the greater the bias.

For short-term traders, I don't doubt that a very short-term reflex rally could occur in November and possibly very early November as fund flows come into the markets spooking the shorts. I, for one, will not try to trade that rally because my greatest fear is that we are going to see the youngsters scramble to save their 2-and-20 bonuses by locking down profits (or whatever is left) and that means that there could be a serious liquidity problem for everyone.

Turning to gold and silver, I have spoken of this more than a few times since 2008, but for the precious metals all you need to watch is whether those that get margin calls are forced to cover. Large Speculators and Managed Money get margin calls; Commercials and Producers do NOT get margin calls. In 2008, Commercials were net short and Large Specs were net long and the Producers were net short while Managed Money was net long. As for the shares, they were massively over-owned by Managed Money and Large Specs. From the chart shown below, you can see that while the Large Specs are no longer net short, they are still carrying a very substantial short position so to add liquidity (cover margin) they will be buyers into any sort of stock market-related liquidity squeeze. Similar situation for the Managed Money gang including the CTAs, all of whom are now de-leveraging as fast as they possibly can.

In other words, the gap between the two lines shown below depicting COT positioning is illustrating an "Extreme Bottom" for gold. Those of you dumping physical gold and silver would be better off hedging the physical with the gold and silver miners if you see overall stock market weakness dragging the miners down with it. Remember, in 1987, the crash took physical gold up $80 but the gold miners got cut in half. Similarly, the long bond had the biggest rally in history at the time. Just sayin'.

There are a great many reasons to be cautious in stocks and bonds and leveraged real estate but I am simply unable to conjure up sufficient arguments against gold and especially silver as we close out the month of October 2018. As I finish this missive, the big new today is the announcement that Germany's Angela Merkel is standing down as chair of the ruling CDU party. This will be viewed as the ultimate dissolution of the glue that binds Europe together. I will have more on that later in the week but for now, the next two days are going to be VERY interesting as the month winds down and book-squaring accelerates. Today we have had a 600-point reversal to the downside and it is going to get even uglier by Wednesday.

Remember the last ten minutes of "Trading Places"? "I demand an investigation. Get those brokers back in here. Turn those machines back on! TURN THOSE MACHINES BACK ON!!!"

Retribution is the operative word for the day.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

Disclosure: 1) Statements and opinions expressed are the opinions of Michael Ballanger and not of Streetwise Reports or its officers. Michael Ballanger is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation. Michael Ballanger was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. 2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports. 3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Images and charts provided by the author.

Michael Ballanger Disclaimer: This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules