I have been watching this huge consolidation in $GLD since December. Here’s the chart posted then:
And here’s an updated $GLD chart from this morning zooming in on the narrowing range:
$GLD topped on October 4th which just happens to be the same day that the $SPX bottomed.
Aside from the convenient symmetry there, I take note of this as we near the bottom trend line in $GLD. A break below that level, signaling a breakdown, may indicate bullish for equities.
Quick update on the Google Is Eating The Internet post from a few days ago.
If you search NCAA Bracket or a bunch of other searches I am sure, you get this interactive graphic below. Its so well done and only goes to show the level of thought and design goodness that $GOOG is putting into capturing page views they once sent away…
Sorry ESPN…
Be sure to click though to the interactive and play with it a bit…
It was Cypriotic.
This past week the mediashpere frenzied on the prospects of a Cypriot bank run after the country reported that it would tax accounts.
It began on Saturday and I warned then that this was way out of proportion.
Sunday night, futures dropped as much as 2%, fueling the fire and the S&P opened Monday morning down 15 handles.
Headlines everywhere spread loaded words like contagion and I wrote Monday morning:
I was not at all surprised by how quickly panic readings went from 0 to 60 on this Cyprus and have recently posted about the high emotional reactivity epidemic among investors here and here.
Many are waiting anxiously for the next shoe to drop. We have been conditioned by market behavior and macro events over 14 years of bubbles, crashes, wars and political incompetence.
Reading this post will not help you recondition but writing about your experiences in excruciating detail and then reviewing your writing later for processing might.
Cyprus is the size of a peanut and in the scheme of things, who really cares. Could this be the beginning, the catalyst, of something much bigger, perhaps, but likely it won’t be.
Its just sentiment reactivity people and its a bullish indication as it behaves like a protective put beneath the market when events look like extreme sentiment bottoms on the snap of a twig.
The nation and the collective market participant is so frazzled by an enduring uncertain and sometimes shocking environment, that the natural tendency is for people to overreact and when we are in such an environment for a prolonged period of time, we tend to overreact x10 and without rational cognitive mediation.
Here’s a great chart @finansakrobat posted to StockTwits on Wednesday of the SocGen Sentiment Indicator depicting the “spectactular turn for sentiment” into Risk Averse territory. Wow:
We don’t think about it, we just freak it.
If the market is going to correct here, and it may, its not going to be because of Cyprus though you will hear ridiculous hindsight attributions along the way.
Make sure you have a plan going in and stick with it as long as it is a good one.
Related:
Panicking About Cyprus? Here’s What To Do First
Early on, while every internet company was trying to get you to and keep you on its website, Google was busy sending you away happy. People would go to Google to search, find what they were looking for and then leave. It was a genius and counterintuitive move.
With the public launch of Gmail in 2007, that strategy started shifting as $GOOG began keeping users on its site for longer and longer periods as they managed their email. Next came a whole host of other services including Drive and Google Plus, which are also more traditional in that they are also intended to engage and keep users on site.
Google has also shifted the way in which search influences user behavior. When once it was all about helping you find the external web page you were looking for, now it is more about giving you what you were looking for directly.
Take, for example the weather. This is what I get at the top when I search Google for weather 10901:
Beautiful. This is simple and all I wanted. So, instead of giving me the best weather sites, it just gives me the information I wanted. I no longer need to go anywhere else.
Sorry, weather.com.
Its not only the weather. Here’s what I get when I search for the wonderful varka estiatorio ramsey nj:
Nice little Zagat integration, sure, but also note the 401 reviews. Not only that, but when you click Read more info you go to Varka’s Google+ page. That little hyperlink is super important for a couple of reasons. First, it motivates restaurants to get on G+, make their page look nice and keep it up to date.
They will also be rewarded for doing this in search results (believe it). Second, its a shift from the way $YELP handles the restaurant as it gives more control to the restaurants who can now fill the page with great photos, specials, whatever they like in order to make it appealing users.
Sorry Yelp.
Not only is Google disrupting $YELP here with minimal effort and lower costs, but they are setting the stage for every business to need to set up and update its Google+ page.
Google is also disrupting content farms.
Remember how it set out on a project to tighten up its search so that sites like $DMD and Mahalo lost search juice? Well, one of the tactics of these farms was to figure out what questions around big events people would be asking Google and then to write a quick story in order to try to capture the traffic. Here’s a post I did two years ago around the question “What time is the Superbowl?”.
Not only has Google set out to fix its search algo around content farms, it has also begun capturing that traffic for itself. Here’s my friend Stacy Ishmael’s recent search results for “when is sxsw.”
No need to click a link. Sorry Demand Media…
This is all a part of the Google+ strategy. Those who have written G+ off as a failed social network are really missing the play here. Gogle is disrupting the universe by automating and being smarter. Meanwhile, it will motivate businesses to incorporate G+ for the businesses’ own benefit all the while capturing data for the next iteration of automation and capture.
Google is eating the internet by leveraging search in a big way and doing it without creating a walled garden.
Pretty sneaky sis…
If you were panicky last night or this morning because of Cyprus, take some minutes today to write yourself a letter describing in detail your experience.
Then save it and take a look at it tomorrow or in a week or whenever you have calmed yourself down a bit.
How were you feeling precisely and in detail?
What thoughts were running through your mind?
What market behaviors did you take and why?
Did you have a risk management plan already expressed before the weekend? Did you stick to it?
What were the information triggers which may have increased your arousal? Do they matter to your plan?
I was not at all surprised by how quickly panic readings went from 0 to 60 on this Cyprus and have recently posted about the high emotional reactivity epidemic among investors here and here.
Many are waiting anxiously for the next shoe to drop. We have been conditioned by market behavior and macro events over 14 years of bubbles, crashes, wars and political incompetence.
Reading this post will not help you recondition but writing about your experiences in excruciating detail and then reviewing your writing later for processing might.
I had the great pleasure of sitting down recently with the awesome Jason Voss at the CFA Institute.
We talked mostly behavioral economics.
Chatting on $AAPL vs $GOOG with Rob Cyran @ ReutersHQ.
Shout out to Chris Kimble and JC Parets whose charts I used as illustrations.
We all recall the Greenspan Put.
This was a term coined in the 90’s as market participants came to understand that then Fed chairman Alan Greenspan would lower the Fed funds rate and provide liquidity when the market got hit. It was perceived as downside protection, hence the term ‘put’.
There’s a similar downside protection phenomena at work today in the market that is psychologically based and it has to do with high sentiment reactivity. Essentially, we’re getting elements of sentiment that look like bearish capitulation extremes even on minor pull backs.
Here’s a definition:
The Freudian Put: Downside protection created by high negative reactivity on a market pull back and/or news where some aspects of sentiment move to bearish extremes unusually quickly – aspects that have been historically reserved for larger market bottoms.
Here’s what I mean by sentiment reactivity. If sentiment is neutral or somewhat positive and the market is rising or stable, a sudden knee jerk and pronounced negative shift in sentiment will occur. Many get very bearish, almost panicy, very fast.
I have alluded to this reactivity previously & recently wrote: we have been conditioned for this and are just waiting for the next shoe to drop as shoes have been dropping left and right for 14 years now.
Even as the market continues to grind higher and make all time highs across multiple indices and sectors, sentiment has remained highly reactive to the downside.
The most recent example of The Freudian Put in effect comes from examining the media/pundit reaction to the most recent pull back. On February 20th the SP 500 fell 19 points (1.25%) and another 9 points on February 21st.
Here’s some prominent examples of market press from February 21st all of which got huge play:
1. GARTMAN: We Are Exiting All Bullish Positions and Rushing to the Sidelines – Gartman’s apocolyptic comments about “tectonic plates” and “earthquakes” got gobbled up like stuffing. via TBI
2. Doug Kass: ‘I’m As Bearish As I’ve Been In Some Time’ – Kass, who usually dances to the beat of his own drummer also seems like he was affected by the Fed minutes and relatively big down day. via WSJ
3. Marc Faber Warns: ‘Market Has Peaked Out’ – The media used to trot out Faber only at market extremes but now he gets play on two days of selling. via CNBC.
Yup, February 21st was a bearish media tsunami off one pull back that is now looking like a blip.
This is sentiment reactivity. This is The Freudian Put.
Now you will know what to look for to see if the Freudian Put remains in effect when the market turns lower for a day or a week or, perhaps, 40 trading days which was the approximate time span of both of 2012’s 2 corrections. Sentiment indicators will gap negative, the media will press fear and your aunt Ika will call you and ask nervously if you should be out of the market.
Commonly, when sentiment gets extreme, its pretty straight forward, simple even. We get something like diagnoses A & B below:
Diagnosis A: Bearish Simplex – Market gets killed, everyone gets negative and scared.
We are all fearful of losses and so extreme consensus bearish sentiment can be harrowing and we use words like panic to describe. Usually, we can also observe reflections of consensus bearishness in the reading of several indicators including the put/call ratio, the $VIX and the AAII Seniment Survey which I highlighted last week.
Diagnosis B: Bullish Simplex – Market rallies over a sustained period, most get positive and discount risk.
Generally, we just love the bull market. People’s moods improve, we buy stuff, companies hire and even hemlines rise with the market. Meanwhile, the same indicators mentioned above flash progressively extreme bullish readings…
Diagnosis C: Conflicted Complex – Market rallies over a sustained period while most feel strongly mixed.
Sometimes, though, things can get much more complicated such that the market indicates strong mixed feelings. Think about it, we humans have big complex brains and we are capable of experiencing strong mixed feelings, well, so is the collective market.
We have this situation now where most are feeling emotions associated with a bull market but at the same time they feel as if some shoe will imminently drop as shoes have been dropping left and right for 14 years now.
You see it in headlines but can observe it most succinctly in the mixed messages of two indicators. The $VIX is making low after low, suggesting expectations of continued subdued volatility. Meanwhile, though, the AAII Sentiment Survey shows significantly lower than average bullishness and higher than average bearishness.
This Diagnosis C is less common than A & B and so even experienced traders, who have learned to read market sentiment and adapt to their own, have some confusion here.
I am watching for fast changes in the extremes as a market tell. For ex: How quickly does the bullishness dissipate when the maket pulls back even a little? How much further in this rally until the bearish aspect of the complex diagnosis break down?
