Weekend Reading: Back up the Truck

The small truck, that is.  The one your five year old plays with.

It still makes sense to be trading in very small sizes and keeping plenty of cash on hand, but every tea leaf we can read points bullish.  Honestly, we looked extra hard for some doom and gloom to balance out the bullishness of these links, but even the perma-bears are buying down here.

  • Warren Buffett, “Buy American. I am.” – his maxim about being fearful when others are greedy and greedy when others are fearful has never seemed so apporpriate.
  • Barry Ritholtz, 3 sentiment indicators – one anecdotal, one U. Michigan Confidence number, one media
  • TED Spread – finally below 4, returning to Earth as LIBOR slouches toward rationality.
  • Rob Hanna, the VIX/SPX divergence – a tradeable edge here, at least over the short term.
  • Us, VIX Futures Market Outlook – volatility won’t stay this high forever, or even for much longer

The internals of this blog and newsletter have also provided some interesting tells recently:

  • Traffic has risen significantly, especially from people searching Google for clearly bearish phrases.  Other financial bloggers have noted a similar phenomenon, that when readers start being proactive about protecting against market risk, it’s usually a decent short-term contrary indicator.
  • Our newsletter members are a fantastic bunch, and many have written in to say that they dodged the worst of October, whether per our warnings or via their own ingenuity.  But we’ve also seen a slight uptick in turnover.  Unfortunately for those individuals throwing in the towel, and fortunately for everyone else, we’ve noticed a fairly tight correlation between increased individual capitulation and declining market volatility.

None of this means the market can’t retest its lows very soon, and we still expect indices to be flat-to-down 6 months from now.  We can’t reiterate enough the importance of risk management.

But at this moment, all the edge seems to be to the upside.

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More


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