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shorting index resistance
- Thread starter krazykarl
- Start date
I think alot of shorts have been rinsed out in the last 8 weeks and there won't be anythig below if/when there is a triggering event. But wtf do i know maybe its up up and away. The big key in the last few years is never underestimate big moneys ability to creat returns when bonuses are around the corner.
As a current 'short' I'm afraid to say you bulls have about had your day at the park!!! Don't be so narrow minded as to look only at the US stock markets....take any Far eastern or European index and you will also see the tiring trend and topping formations. To a grater or lesser degree, I'll give you another 2 weeks maybe,if you don't break higher in the US then 'ciao
for now' and we will test the May lows and beyond...
The issue (as a Eropean) we generally have is that bad news usually takes longer to filter into the US markets because of the underlying individual investor base supporting the markets. You are all still concentrating on inflation when you should be looking at a hard landing and quite a dramatic slowdown.
EG. Housing/Consumer confidence/Philly Fed!!!!!
By the time 'mug on the street' reads it in his local rag it will be too late and wham bam thankyou...dow is 500 lower to start off.
Good luck to all you buyers, its a limited upside, you just have not realised it yet.
for now' and we will test the May lows and beyond...
The issue (as a Eropean) we generally have is that bad news usually takes longer to filter into the US markets because of the underlying individual investor base supporting the markets. You are all still concentrating on inflation when you should be looking at a hard landing and quite a dramatic slowdown.
EG. Housing/Consumer confidence/Philly Fed!!!!!
By the time 'mug on the street' reads it in his local rag it will be too late and wham bam thankyou...dow is 500 lower to start off.
Good luck to all you buyers, its a limited upside, you just have not realised it yet.
Quote from Ubertrader:
The issue (as a Eropean) we generally have is that bad news usually takes longer to filter into the US markets because of the underlying individual investor base supporting the markets. You are all still concentrating on inflation when you should be looking at a hard landing and quite a dramatic slowdown.
EG. Housing/Consumer confidence/Philly Fed!!!!!
Are you kidding????
That makes little sense: the US market reacts IMMEDIATELY to bad news - sometimes overreacts. Iran enriching uranium? Dow down 100. N. Korea testing nukes? Dow down 150. Fed hiking rates? Dow down 212.
I'm sorry, but your statement is just plain incorrect. The markets move on news - there just hasn't been any news of substance to move the markets recently. Thai coup? Please....I said news of substance.
If you are going to give a viewpoint please make sure that the quantitative facts are correct. As for the Philly news, look at the market - Dow down 60+. Immediate reaction.
edit: just noticed your comment about the 'individual investor base'. Please. I would be willing to bet individuals comprise less then 15% of the US capital markets....
Quote from krazykarl:
Are you kidding????
That makes little sense: the US market reacts IMMEDIATELY to bad news - sometimes overreacts. Iran enriching uranium? Dow down 100. N. Korea testing nukes? Dow down 150. Fed hiking rates? Dow down 212.
I'm sorry, but your statement is just plain incorrect. The markets move on news - there just hasn't been any news of substance to move the markets recently. Thai coup? Please....I said news of substance.
If you are going to give a viewpoint please make sure that the quantitative facts are correct. As for the Philly news, look at the market - Dow down 60+. Immediate reaction.
edit: just noticed your comment about the 'individual investor base'. Please. I would be willing to bet individuals comprise less then 15% of the US capital markets....
You are correct in your response and maybe my brief synopsis was not specific enough. I am merely pointing to the fact that general 'domestic' issues take longer to filter into the US markets than they do in some other world indices.
Of course news is felt immediately, as in all markets.
However the news you quoted (iran, Nkorea) is not really world market moving news to the rest of the planet. You over react to it because of the way it is reported via your media. As for the coup in Thailand, it was automatically sanctioned by the King and therefore no big deal. So yes it was news but hardly market moving!
I digress, 15% (if that is correct) is still a large investor base who does not necessarily react immediately, if at all! They are the ones who sit and read Barrons once a week or get their prices from the WSJ the next day. They are in for the long haul and do not move until the last minute, but still are a major force behind most US bull markets.
Here is a relevant comment by John Succo:
--
John Succo at Minyanville.
Professor Succo asks and answers the question: Is the rise in short interest really a bullish occurrence? To answer that question one must understand why short interest has been rising. So... What's Really Affecting Short Interest?
John Succo:
In my conversations with bulls, they have been squawking about short interest: last month a record 18% of sales on the NYSE were short sales. This is bullish they say! All those shorts mean people are too negative and they will be forced to cover.
On the surface that may be what it looks like. But as always, I encourage people to look at the "why" behind the "what." There are two factors that are affecting short interest dramatically and both have to do with derivatives.
My fund is a very large short seller of stock and we represent a decent percentage of total short interest out there. But the reason we are short stock is because people sell calls. I have described these funds that buy stock and sell calls and deem it "income" for their investors. In reality, these funds can be very dangerous and risky if the market begins to decline. I can almost guarantee you that if the market drops enough, the risk will force these managers to sell stock to protect that "income."
So as these trades occur, funds buying stock and selling calls (which is a net bullish strategy), I take the other side on a ratio to create a volatility trade. I will never be forced to cover my short stock as it rises and in fact will short more. So instead of the comment "a rising market will force short sellers to cover" being accurate, in fact, as the market rises I will actually sell more shares short to hedge my exposure to the long call option.
Secondly, and perhaps more importantly from a sentiment point of view, the percentage of insider sales relative to buys has been growing dramatically. Insiders like principals in companies, are net sellers of stocks in a pretty big way. Part of this is due to normal diversification activity, but part may also be due to "them knowing something."
The way this actually occurs though is through a derivative transaction called a variable forward, which has some tax and profile advantages for insiders. Instead of actually selling stock, they enter into a contract with a broker-dealer to sell it forward with some risk (this profile allows some deferment of taxes). In hedging the transaction, the dealer enters the market and shorts stock.
So it is inside selling that is causing a great deal of short interest to grow.
Both of these factors account for most of the short interest you see being quoted out there. Both of these factors argue against large short interest being a bullish factor and actually argue for it being a bearish one.
John Succo / Minyanville
--
John Succo at Minyanville.
Professor Succo asks and answers the question: Is the rise in short interest really a bullish occurrence? To answer that question one must understand why short interest has been rising. So... What's Really Affecting Short Interest?
John Succo:
In my conversations with bulls, they have been squawking about short interest: last month a record 18% of sales on the NYSE were short sales. This is bullish they say! All those shorts mean people are too negative and they will be forced to cover.
On the surface that may be what it looks like. But as always, I encourage people to look at the "why" behind the "what." There are two factors that are affecting short interest dramatically and both have to do with derivatives.
My fund is a very large short seller of stock and we represent a decent percentage of total short interest out there. But the reason we are short stock is because people sell calls. I have described these funds that buy stock and sell calls and deem it "income" for their investors. In reality, these funds can be very dangerous and risky if the market begins to decline. I can almost guarantee you that if the market drops enough, the risk will force these managers to sell stock to protect that "income."
So as these trades occur, funds buying stock and selling calls (which is a net bullish strategy), I take the other side on a ratio to create a volatility trade. I will never be forced to cover my short stock as it rises and in fact will short more. So instead of the comment "a rising market will force short sellers to cover" being accurate, in fact, as the market rises I will actually sell more shares short to hedge my exposure to the long call option.
Secondly, and perhaps more importantly from a sentiment point of view, the percentage of insider sales relative to buys has been growing dramatically. Insiders like principals in companies, are net sellers of stocks in a pretty big way. Part of this is due to normal diversification activity, but part may also be due to "them knowing something."
The way this actually occurs though is through a derivative transaction called a variable forward, which has some tax and profile advantages for insiders. Instead of actually selling stock, they enter into a contract with a broker-dealer to sell it forward with some risk (this profile allows some deferment of taxes). In hedging the transaction, the dealer enters the market and shorts stock.
So it is inside selling that is causing a great deal of short interest to grow.
Both of these factors account for most of the short interest you see being quoted out there. Both of these factors argue against large short interest being a bullish factor and actually argue for it being a bearish one.
John Succo / Minyanville
Ubertrader, I'm not so sure how much effect the "Barrons reading individual investor" has over the markets.
I had the impression that the markets are moved by the "leveraged speculator" group, i.e. hedge funds and IB prop desks, the same people who brought you 70+/bar oil, $15/Mbtu nat.gas etc.
These market participants typically playing with OPM, have been taking progressively bigger and bigger risks in a world with diminishing yields and volatiliy, employing leverage to magnify them.
IMHO it's "Ponzi finance".
Just look at the disgraceful monetary policy of Japan, funding all this Ponzi finance at % rates and an assurance for a weak confetti-currency Yen.
I had the impression that the markets are moved by the "leveraged speculator" group, i.e. hedge funds and IB prop desks, the same people who brought you 70+/bar oil, $15/Mbtu nat.gas etc.
These market participants typically playing with OPM, have been taking progressively bigger and bigger risks in a world with diminishing yields and volatiliy, employing leverage to magnify them.
IMHO it's "Ponzi finance".
Just look at the disgraceful monetary policy of Japan, funding all this Ponzi finance at % rates and an assurance for a weak confetti-currency Yen.
Quote from mtzianos:
Ubertrader, I'm not so sure how much effect the "Barrons reading individual investor" has over the markets.
I had the impression that the markets are moved by the "leveraged speculator" group, i.e. hedge funds and IB prop desks, the same people who brought you 70+/bar oil, $15/Mbtu nat.gas etc.
These market participants typically playing with OPM, have been taking progressively bigger and bigger risks in a world with diminishing yields and volatiliy, employing leverage to magnify them.
IMHO it's "Ponzi finance".
Just look at the disgraceful monetary policy of Japan, funding all this Ponzi finance at % rates and an assurance for a weak confetti-currency Yen.
With regard to the 'Barrons reading investor' its simply a point of view, not something I could back up with statistics.
I run one of the aforementioned hedge funds, however i am also invested in the program and what I risk with OPM I am also risking myself. Although to be honest i differentiate between FOF investors and banks and the general HNW who may invest in other such funds, in that they are far more experienced in this field and therfore can afforf to play the game!
I would agree that Japan has long been the manipulator & this could well come back to haunt them.
But with regards to Hedge funds/prop houses running the markets you may have a point in the financial markets (but that was not my earlier comment) but only yesterday I did an interview for Institutional Investor/Alternative Investment News on the impact of Armaranth & funnily enough we discussed the very topic of Hege funds in the Commodity market' bull run. Without boring you too much the bottom line was that Hedgies accounted for only a small % of the bull run in commodities (energies/metals). yes they may well have pushed the envelope at certain times but underlying producer demand/hedging and global economics really did all the work.
Quote from mtzianos:
Here is a relevant comment by John Succo:
--
John Succo at Minyanville.
John Succo:
.....
My fund is a very large short seller of stock and we represent a decent percentage of total short interest out there. But the reason we are short stock is because people sell calls. I have described these funds that buy stock and sell calls and deem it "income" for their investors. In reality, these funds can be very dangerous and risky if the market begins to decline. I can almost guarantee you that if the market drops enough, the risk will force these managers to sell stock to protect that "income.".......
John Succo / Minyanville
He is biased, which reduces the validity of his perspective.
Giving him benefit, he is saying when the fund that sells the calls and books the premium is in a market when the stock price declines, they will have to sell stock???? It could be my lack of caffeine, but that makes no sense. A seller of calls WANTS the stock to go down so the calls expire worthless.
In the above scenario a down market would allow the seller to book the premium and not be assigned - and have a stock that is underwater. So what do they do? They double-down, and wait to unload when the trend turns back up.
I have a perspective on the recent "increase" in short selling lately. I have no doubt the shorts helped push the indicies up the past few weeks and that we will correct for a few days. then what happens when the shorts are out of cash we start drifting up again? they start covering and propell the markets higher.
for shorts: opening their trade and closing it both help the market move higher. god bless people that use stops - you provide my liquidity.