Random Thoughts

Its difficult to come up with full length posts when the market has not budged in a week. Instead I will go with some random thoughts:

  • The worst of the overbought reading should be worked off by tomorrow's close. That would not make us oversold. It likely would make us neutral to slightly overbought.

  • This would be the first time in over a half a year that an overbought reading did not do a lot of damage.

  • I think that a whack coincident with us working off the overbought reading is likely buyable.

  • The tougher call would be if we rallied into tomorrows close.

  • Jefferies came out negative on the software sector today due to a tough 2012. No matter that they were bullish 30% higher. Did they think there would never be a slowdown?

  • In the long run valuation is the only predictive factor of stock prices, yet most analysts completely ignore it.

  • What do readers believe the current state of market sentiment is? Are we seeing too much/extreme optimism?

3 comments:

Dirigi said...

Tough market.
There is quite a bit of optimism, and the isee shows it well, but any little pullback brings put buyers. A whack should make it easier indeed.

Randolph Bertin said...

First, I have really been enjoying your comments since I came across the site via an Abnormal Returns link. I especially appreciate when you share your psychological reactions to the market and your positions.

I don't have a reasonable way to judge the market sentiment outside my own reactions (i.e. I don't spend time with financial pros). When I see prices falling far enough, fast enough to make me feel nauseated, then pessimism is running high. It might run quite a bit higher, too. I have difficulty understanding why people can't get rid of their stocks fast enough, stocks which they were very enthusiastic about not long ago. On the flip side, when prices have risen and they keep rising I become anxious. I would really like to buy more but prices have gone through the roof. Market sentiment is optimistic (again, I'm not sure why people are willing to pay $16 per share this week for XYZ when last week they considered themselves fortunate to get out at $12). Sure I should be selling, but that is difficult (good old fashioned greed). At least I'm not buying (though some might say I should be buying momentum). Based on my personal mental state, the market is middling, nowhere near extreme. Sure some companies are getting crushed while others are rising precipitously, but on the whole, nothing much has changed and we still seem range bound.

It is interesting that you note, "In the long run valuation is the only predictive factor of stock prices, yet most analysts completely ignore it." It would seem you are trading (short term) on sentiment, but investing (long term) on valuation. Is that fair to say?

I am buying cheap (or what looks cheap to me) for the longer term.

Tsachy Mishal said...

Thank you. You described very well what I do. I am a value investor when it comes to choosing my positions. I use sentiment and other factors such as seasonals to trade.