OnIslandTrader's Blog Posts on People And Picks

Bad breadth, but we're all bears

Fri, 27 Aug 2010 00:21:26

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For the original article with charts go to
http://blog.onislandassetmgmt.com/?action=view&url=bad-breadth-but-were-all-bears
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With the recent decline in stock prices, breadth has once again turned bearish. Have a look at the charts below to see just how bad things have become.

The S&P 500 has formed an ominous head-and-shoulders formation. Two big days of selling could easily take us below support levels and from there it's a long ways down to the next support level.

The NYSE BPI is bearish again, but at least it is above the lows from the past few months.

The Advance-Decline index continues to look stronger than the price action would have you believe. However, after a short rally the High-Low index has once again stalled out as the number of stocks hitting new 52-week lows spikes to levels last seen during the flash crash.

From the charts above and the near daily release of worse-than-expected economic statistics, you wouldn't think there's much of a reason to be bullish. But then you would have forgotten about the beast lurking in the corner. And that beast is sentiment.

This week's AAII Investor Sentiment poll showed a dramatic shift in bearishness. Couple that with a relatively low allocation to stocks and you've got yourself a bundle of dynamite just waiting to be ignited, "real" arguments and statistics be damned.

Bearish prints like these don't necessarily mean that we've seen the ultimate lows. They're just warning signs that the ...

From bad to worse

Thu, 19 Aug 2010 14:00:06

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For the original article with charts go to
http://blog.onislandassetmgmt.com/?action=view&url=from-bad-to-worse
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Initial unemployment claims were released today and they were ugly. Back above 500K on clearly violating any last possible argument of unemployment claims being in a downtrend.

With all-bark-no-bite bulls (why we rally sharply to resistance and then can't seem to squeeze out even just a few more points to push us through resistance is beyond me) and with claims breaking out to the upside, it's time to bring that hedge back up in size again. We're now roughly 70% hedged and will go full once we see breadth confirm the recent weakness in price action. Sometimes high volatility on its own warrants a significant hedge and this has definitely been a meat-grinder market the past two months.

The only bullish argument one can draw from the increase in claims and poor price action is that it's becoming even more evident the Fed will have to act to stave off deflation and a double dip recession. The pain is getting worse and the patient is in critical condition. All we need is a week or two of relentless selling to quiet the cries of inflation and the Fed will have the ammo it needs to act. Ironically, the best thing a bull can do to drive the market upward is to stop buying for a week or two. Correct or not, most economists (the Fed included) see the market as a confirming indicator. ...

This time Rosie's right

Wed, 11 Aug 2010 20:11:08

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For the original article go to
http://blog.onislandassetmgmt.com/?action=view&url=this-time-rosies-right
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As I said, most of the time I agree whole-heartedly with David Rosenberg. In today's Breakfast with Dave he made the following remark:

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Almost half of the ranks of the unemployed have been looking for a job fruitlessly for at least six months. Let’s get these people re-engaged in the labour market, get them re-tooled and retrained for the skill set that businesses need now and in the future. Give these folks a shovel from 8 to 12 and engineering courses from 1 to 5 in return for their jobless insurance check.

Why isn't the government doing this already? What better way to get people motivated than forcing them to work a shitty job for Uncle Sam until they find one on their own? Don't want to do manual labor? That's fine, just don't expect to see anymore of those cush unemployment checks in the mail.

Two months should be enough time for anyone to get back on their feet and get a new income stream going. Can't cover all the bills? Time to start cutting back on whatever luxuries you're still affording yourself. Any longer than two months and you're either A) not looking hard enough, B) barely have the skills to earn the title of "employable", or C) both.

Either way, why should tax payers be paying you to do nothing when no one is willing to pay you to do something?

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