so Davidson has a response and a take on the constant fretting about the “frothy” market and the upcoming sell-off they fear/predict. NOTE: I am one of those “fretters” although not shorting….just not buying
The genesis of this was a recent article in Barron’s that said in part:
HOW MUCH WOULD YOU PAY, IN ROUND NUMBERS of unmarked bills, for a quick 10% retreat in the Dow? For the kind of 10% correction that was a thing to be feared when we went a couple of years without one, but now would make it easier for an investor to buy stocks that are up 40% from their lows, stocks for which there seemed no rush to own just two months ago?
Most investors, especially those long-only pros who grapple a benchmark for a living, seem to wish for a fleeting drop of 10% or more to provide psychological cover for entry.
More staunchly bearish folks — among them those who, based on the latest exchange data, have been reloading short positions — want that 10% as a small down payment on the resumption of the bear’s dominance.
The rest of us just pray for the wisdom to know the difference should such a pullback arise.
Strategist Jason Trennert of Strategas Partners sums up a common stance: “Simple valuation analysis leads us to be skeptical about the potential of the market to rally from these levels. The problem, it seems, after spending the last week on the road and looking at recent short-interest data, is that we have a lot of company — very few of our clients believe the rally is real.”
John Roque, the technical strategist at Natixis Bleichroeder who has been in synch with the rally and the preceding collapse, detects an upside “breakout” on the chart of investor frustration, because they have doubted the rally and owned too little of the stuff that has run the most.
The blogger sentiment poll on Birinyi Associates’ Ticker Sense blog (http://www.tickersense.typepad.com) last week showed 50% bears to 33% bulls — almost as many bears as at the early-March lows. In late January, just as the market was ready to roll over hard, 65% of the bloggers were bullish.
Other sentiment indicators are leading Ned Davis Research to get behind the idea that “a monster rally could continue within this secular bear market.”
This remains a net positive for the market, the idea that investors (and financial columnists, it should be said) continue to “fight” this move. Sure, they (and we) have been fighting it with some plausible ammunition: the slipshod quality of the leading stocks, the massive speculative volumes in stock options, the spike in corporate-insider selling, the fatigued look last week of the recently indomitable Nasdaq index. These characteristics can, and would, accompany both a doomed head-fake rally and something larger, for sure.
Of this think, Davidson opines:
“This is the type of article that imparts a great deal of information without being definite. From this I get that there appears to be great concern amongst many noted investors, esp. technical types, that a correction is due and most have invested in anticipation of a correction to what appears to be obvious over zealousness by current market participants. I don’t invest trying to catch short-term dips. My time perspective is a business cycle with the goal of adding fresh capital during the down portion of a cycle and removing capital during the up portion.
Reading of the angst of traders not knowing what to over the short term leaves me in a positive frame of mind, knowing that their stance in the market will add additional buying pressure when there is additional recovery in the business cycle.
For business cycle investors this is a bullish environment.”
Disclosure (“none” means no position):