The Marginal Buyer

I keep asking myself who is left to buy? Fund manager surveys show that cash weightings are extremely low. Sentiment surveys show the lowest levels of bearishness among both investors large and small in many years. Option activity is as skewed towards call buying as I have ever seen it. The conclusion I come to is that there is nobody left to buy. But I thought that on Friday as well and here we are up another percent?


Anonymous said...

Maybe those who control the printers ?

Robert in Chicago said...

Everyone currently focusing on fund flows and cash balances and sentiment may be completely missing it these days. The world has changed. If 40-70% of a day's volume is now HFT computers, and a lot of those computers are day-trading and flattening out by end of day, you don't need any fund flows or people moving longer to move the price.

Anonymous said...

This market is pinned within tics of the high for most of the day. The vast majority of times this has happened over the course of the last 10 months the next move is 2% straight up. I am not Ned Davis, I can't prove this. It is just a general observation.

Ask Trim Tabs who has been buying the last 20% in the S&P, the answer is "no one", yet up we go.

I am reminded of the second half of 2006. It will keep going up on no news, good news, and bad news.


Tsachy Mishal said...

I am not convinced that fund flow analysis should be ignored. While the current rally could easily be explained with conspiracy theories, it can also be explained with fund flows and sentiment data.

In March, investors were holding record cash and short positions. Bearishness was off the charts. During the past nine months we traversed to the opposite extreme. That explains the move as well.

Robert in Chicago said...

Tsachy, don't confuse:

(1) "HFT's" with "conspiracy theories." Our fund acts on the assumption that there are no conspiracies, just individual entities acting in their own self-interest.

(2) March'09 with now. Now that cash positions and net short positions are at medium-term lows, what accounts for today's action?

BTW this is the first day I have posted on your site, but my partner and I have read you for a long time, and we have a lot of prominent financial blogger friends. Keep up the good work.

Tsachy Mishal said...

Thanks. I appreciate it.

I was referring to the money printing argument when I mentioned conspiracy theories.

Can you elaborate on the HFT argument. How can someone who is netting out every day influence the price so much? If they are getting in and out every day why do they care if the market is high or low?

Robert in Chicago said...

The HFTs don't "care"; they are just trying to make money. So they compute the day's likely high and low based on many factors, but primarily a combination of momentum and mean reversion. On a day like today (i.e. most days over the last 9 months), it is not hard for them to buy early and then distribute their holdings during the rest of the day.

This works, until it doesn't. When things reverse, they could cause another Black Monday.