Nov

25

 I must confess that I've been approaching the futures board from the Long side of late. I heed signs of climactic Bear sentiment:

1. Most stock indexes reached long-standing target of flat correction, having traded back from record -> 2002 lows. Most people, though, continued to use the same approaches as they've employed at significantly higher price levels (at 100% higher levels, bluntly speaking).

2. Certain prices are preposterous. Prompt gasoline traded below $1.00 down from $3.63 record July 11; four months move! Copper swung from $4.08 to $1.52! One must remember that, as opposed to individual stocks that have proven their theoretical potential of wiping out,  this simply can't happen to raw materials. Swiss Franc depreciated whopping 25% in same period, which is way too much; but raw materials by 62% !??

3. Despite 30-90 day T-bill rates at literal zero, people appear to have bought into the idea that yields may go negative. I took Central Banking from Lorie Tarshis (who studied under and later worked for Sir John Maynard Keynes himself). Lecturing in 15% prime rate environment, Lorie shared his experience of persistent negative T-bill auction yields that followed the 1929 crash. It sounded exotic, and people hardly believed my story over the years; but here and now, suddenly everyone believes this possibility! My sense is, given modern financial sophistication vs. early 30s,  why would it come to that this time around?

4. Even if the economy and corporate margins stagnate forever , why wouldn't dollar-denominated nominal prices of everything, including listed stocks, rise? There is obvious $-debasing going on; purchasing power of paper currency units will hit the skids…

5. Then, there are shorter time-frame sentiment observations. E.g. Monday's Open Interest in E-mini futures decreased 1% on rally (definition of short-covering); but big S&P Open Interest rose 3% during same day's advance! To me, institutional traders have started to accumulate Longs, while Small Traders are too busy just short-covering!

6. From its new decade's low, the S&P is beginning to rally through 38% retracements and aim at 50% ones. It's also beginning to only pull-back 38%. Of course, there will be more scares to come in many areas and shoes to drop, but I can hardly bring myself to approach the board from the Short side strategically.


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