Chin up, bears!

20OCT2010 13:06GMT

The blog has been a quiet lately, maybe the Scissor Sisters could release a song titled
“I Don’t Feel Like Bloggin'”?

So …

Just a quickie before the cash open.

Flicking through Zero Hedge, having a giggle at a few of the tin hat rants and shaking my head at the defeatism of those who say there is no money to be made in the markets (hint: if something moves there is money being made). But I also got another impression, that the bears are despairing of getting rewarded for their bearishness.

What do I mean? Well, there is persistently a strong current of arrogance in the perma-bears (the vast population of Zero Hedge posters are perma-bears), an attitude of “I am right and the rest of the world (except the vast audience reading ZH for their daily dose of confirmation bias, of course) is wrong”. But reading it this morning I get the feeling that some of the ZH bears are despairing because despite all the bear news (‘currency wars’ (LOL), impulsive selling off the recent highs, China’s ‘shock’ rate rise, USDX rallying & its inversely correlated mimics falling) the S&P has held up really well. Now, I have written before about another situation where the bears were getting excited by events seemingly in their favour but having their noses bloodied by rallies back from what appeared to be impulsive sell-offs in the market (around the time just prior to the August 2010 FOMC meeting … in the post entitled ‘FOMC Today’). It just seems to me to be a similar dynamic potentially playing out. We had a good down day last week … except for the last hour when all of the day’s losses were rapidly recovered. Yesterday was a reasonable sell-off but again there has been a bounce.

If the bears that are trading (many of the perma-bears are merely market commentators, not actual traders) are going to be despairing and therefore cutting back on their shorts, and the bulls are going to be holding longs then the potential in the ES is for a sharp sell-off, with no shorts around to buy back and thus provide some support (BTW, of course there are always shorts etc., I am talking of the weak vs. strong holders and I think a lot of weak bear positions are being shaken out).

There is still 2 weeks to go (give or take) until the next FOMC meeting so maybe I am way ahead of myself (I think I am), or maybe there is a sell-off but only back to 1145-ish sort of level (some support around there).

I am going into the cash hours without much of a bias. If anything I am mildly bearish, bit of a dip, model #1 is leaning this way, model #2 not giving me much in the way of a hint.

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