Primary Bid

I almost always sell too early and rarely hold on too long. My natural inclination is to want to take profits on my longs into the most recent rally. However, when I examined many of my indicators this morning I wondered if I were long enough.

Over the past two days Rydex traders have actually increased their short positions. Despite the large rally off the bottom Rydex traders remain positioned extremely bearishly. Bearishness from participants in the Investor's Intelligence survey, Hulbert newsletter writers and hedge fund managers has risen even as the market has risen. This is usually extremely bullish. Imagine where the market would go if all of these participants tried to move back to neutral at the same time.

I have heard that the primary bid in the market has been from share repurchases. Once corporations repurchase shares they do not sell them back, at least not right away. This corporate buying does not seem to be letting up.

We have had a large move higher in the market and the situation in Europe has not gotten better. I will likely force myself to make some small sales if the rally continues but I will be doing so half heartedly.




Onlooker from Troy said...

I've had the same thoughts here.  It still seems prudent to be relatively cautious here so as not to get hit by that big left hook from Europe, as you've pointed out.  But I'm trying hard not to reduce long exposure as we go along here, in light of sentiment, etc. 

I wish I still had that QQQ position I let go on Wednesday!  Ah well, opportunity cost hurts, but not as much as real losses.

frank r said...

I'm sorry now I didn't buy more when prices were lower. I made it up to 33% stocks, from a starting level of 0% since April 2010, but then the market ran away from me. I'm certainly not to going to sell that 33% at current prices. If the SP500 goes back to 1350, that's another matter. Nor am I too keen on adding at current prices, though I can see your argument about everyone being positioned bearishly.

I continue to believe we are heading into recession and inflation will be down over the next few years. There are still a bunch of bubbles yet to burst: China, commodities, Australian and British housing. The dollar will likely strengthen against most currencies, despite all the Fed easing, simply because the rest of the central banks will be easing more (Europe) or else the economy will be falling into a deep recession causing a flight to safety (developing world, commodity exporters like Australia and Canada). Japan is unclear. So I expect the SP500 to test at least 1000 at some point, which is why I was hesitant to commit 100% at 1150, which was the best I could get. (I missed out on the 1120 level because I was on vacation.)