patrick.net

So let me get this straight,...you're bearish ?

Sound like an Elliot Wave guy.

Let's hope you are wrong, or we are all so f*&^ed. If it's not the end of the world, then the S&P at 525 would be a pretty awesome investment.

And if it's true, you can use this prediction to get brokerage clients. You should send some different predictions to other blogs and forums. Whichever one is correct, you can use to drum up business.

Just kidding. That's an old stock broker joke, the guy calls 128 prospective (wealthy) clients and tells half of them the market is going up this week and half that its going down. The next week he calls the 64 that he was correct with, and repeats, half he tells the market will go up, the other half, that it will go down. Repeat, with the 32, and then with the 16 and 8. When he gets to 4 people, he has called the market correctly 5 weeks in a row for them, and he asks them if they are interested in putting up a huge amount for his special hedge fund.

Just a joke, but it's probably been done.

marcus says

So let me get this straight,…you’re bearish ?
Sound like an Elliot Wave guy.
Let’s hope you are wrong, or we are all so f*&^ed. If it’s not the end of the world, then the S&P at 525 would be a pretty awesome investment.
And if it’s true, you can use this prediction to get brokerage clients. You should send some different predictions to other blogs and forums. Whichever one is correct, you can use to drum up business.
Just kidding. That’s an old stock broker joke, the guy calls 128 prospective (wealthy) clients and tells half of them the market is going up this week and half that its going down. The next day he calls the 64 that he was correct with, and repeats, half he tells the market will go up, the other half, that it will go down. Repeat, with the 32, and then with the 16 and 8. When he gets to 4 people, he has called the market correctly 5 weeks in a row for them, and he asks them if they are interested in putting up a huge amount for his special hedge fund.
Just a joke, but it’s probably been done.

Lol, that's a pretty awesome joke.

I don't think the world would end at S&P 525....but it won't be pretty either. World didn't end during the Great Depression/Nazi Germany either. And yeah good chance market would zoom back up if it got there, but I suppose it would depend on the circumstances.

Technically, Prechter thinks we're going to Dow 1000, now I'm pretty sure THAT means the end of the world :)

Guess I hope I'm wrong too, cuz my business will probably take a beating...how much, I dunno :)

Those puts are awfully expensive. If one had the capital to do a "naked write" then they should sell a few of those puts (naked). Worse case you have to buy the spy at 75. Best case they expire worthless and you make the proceeds from the sale. Heavy margin though.

There is a way of view those options that its not as skewed. Compare the price of the june11 120-130 call vertical to the june11 80-70 put vertical. Both spreads go to 10 if they expire above 130 or below 70 respectively. The put spread is actually cheaper than the call spread (as usual).

SF ace says

marcus, me and my partners does naked write. We made money in 95% of the cases as most just expires worthless, but the one case we lost and lost huge was writing puts for bank of America, when it went from 30 bucks to 5 bucks in 6 months. So it is not foolproof, but that is why you need the capital and even out the payouts and eventually win 5-10% of the option premiums. From this perspective, we’re in the insurance business and manage the premiums collected to make sure the risk is manageable.
Actually the 75 june 11 puts for SPY is closer to 4.30 not 3.90.
We actually set up a spreadsheet to determine which calls and puts have the best value and conversely which calls and puts to write. Your spread does not explain market sentiments. If you think about it, losses are limited, but gains have no limits so put spreads have to be tighter than call spreads to account for risk. but I was just trying to simplify things, no matter what angle we are looking at from the option lens, the view is negative. Options and Bonds are my indicators. (People follow the news, I follow the money)
btw, that jokes been done and talked about years ago and is still being done today. It’s more of a scheme than anything. The 2010 version of this scheme is progressed and applied to sports gambling where so called “insiders” document their 80% winning percentage to get you to sign up for their service.

Yeah, the 10/30 year bonds are partly why I'm quite bearish. If people are settling for yields that low for that long with all the news of currency risk, then that says something.

Even moreso, it says a lot about economic growth prospects. Rarely does the bond market settle for a yield less than expected nominal economic growth...

Your "even more so" point makes total sense, which I'm sure is what SF meant too.

But sometimes lower yields in other investments make people willing to pay more for stocks, accepting lower yields as well. Not trying to argue here, just saying there is a sort of paradox there, as I'm sure you know.

I guess it comes down to: if the lower yields are a "flight to quality" or a sign of deflation, or a sign of impending slow economy; In all of these cases yes, bearish. What other case is there ? I don't know. Whole new paradigm ? Yeah, now that I think about it, from these historically low levels of long term rates we were already at it's hard to see another reason.

But if mortgage rates could come down enough for a while, it sure would help real estate. And the real estate problem ( not a problem for those of us who are effectively "short" housing, ie renting ) does effectively reduce the borrowing side of long term money (indirectly the sellers of 10 yr and 30 yr debt). Probably not that significant compared to what governments are doing.

The stock market lately defies explanation. News agencies keep reporting about good news in the economy while out of the other corner of their mouths they talk about bad news in the economy. The value in the stock market doesn't seem to be based on any fundamentals. Corporations are starting to stockpile cash but they're not hiring or paying dividends. They're not buying up stock just sitting out there to prop up prices. I'm not sure why we are hanging around 10300 or so with the DOW. I have had a sinking feeling about the stock market for months that we aren't done with devaluation because the fundamental supports for prices just don't seem to be present. Some corporations are reporting a bit of profit, but nothing spectacular. Perhaps we're going to be at this "resting place" for a few months and then where it goes from there is anyone's guess. Perhaps there is just enough activity in the economy to sustain a very slow recovery. I'm not convinced yet. I'm still expecting another crash and more pain in the economy. However, I could be wrong because the market doesn't seem to be behaving rationally lately. I'm interpreting that as a bad sign, but I could be wrong.

simchaland says

The stock market lately defies explanation

Not really--corporate earnings are very strong and interest rates are very low. That's a good environment for stocks.

tatupu70 says

corporate earnings are very strong

What are you smoking? Sorry, but I don't see earnings as "strong." I'd call them "luke warm" at best.

FYI - I still invest in stocks through my 401k. I'm careful in balancing my account according to risk. However, I don't think things are so bad now that I would take everything out of stocks. I believe in investing in the stock market over the long term. I think that in 20 years or so, things will look better. Maybe that's just blind optimism. Or perhaps it's acknowledging that the people who are in charge now are doing everything possible to drag this recession and the slow recovery out as long as possible, for a decade or more at this rate.

Careful investing now will set me up so that I can eventually retire, I believe. The stock market is still one of my vehicles for investing for a future retirement, perhaps in 30 years... (I'll be 70 then.)

simchaland says

What are you smoking? Sorry, but I don’t see earnings as “strong.” I’d call them “luke warm” at best.

Unfortunately no smoking anymore. I guess it's a matter of degree, but corporate earnings seem to have been driving the market higher I think.

is too obvious so the market will go sideways until everyone daytrades their account to $0 and their LEAPS expire worthless.