Too Much Greed & Bullishness Still

What the market giveth, the market taketh. That might be the conclusion of the action overnight as shown on this chart:

Such a rise was proof of bullishness and bottom calling. Too early.

  • Too many people are calling it a capitulation for it to be one. If everybody thinks it's a capitulation, it cannot possibly be one.
  • Too many people are still very calm and call the decline orderly.
  • Too many asset managers expect a rally and the resumption of the bull market.
  • Risk is still on, as shown by the gold buying that is going on. This is not a sign of panic. There's a parabolic rise in gold that reminds me of silver a few months back.
  • Too much hope that Ben Bernanke or Politicians or State Sovereign Funds will step in to save the day. This is definitely not a sign of capitulation.

Here are a few quotes from Bloomberg reports:
Aug. 8 (Bloomberg) -- The worst stock decline since December 2008 is being absorbed by the market and while some investors panicked, there are no signs liquidity is being withdrawn as it was in the selloff of May 2010, traders said.
The decline has been somewhat orderly,” said Mark Turner, head of U.S. sales trading at Instinet Group Inc. in New York, in a telephone interview. Instinet handles about 5 percent of the total daily U.S. equity trading volume.

“I don’t think we’re seeing any liquidity issues today, whereas the flash crash was something completely different,” Turner said. “We saw program trading taking over and the collapse of the market for a lack of bids. I don’t see that happening today.”
“It’s still a rough tape for everybody,” Mock said. “The markets are fairly orderly if extreme in their movements. It doesn’t feel like a disorderly selloff with a panic-stricken move. People are taking risk off the tape and the market is re-pricing events going on in the world.”
Another report:
Aug 9, 2011 (Bloomberg) — [...]
Taiwan's government bought equities yesterday and this morning through four funds it controls, Philip Yang, a Cabinet spokesman, said. Korea Teachers Pension, the nation’s second- largest public pension fund, said it purchased about 70 billion won ($64 million) of stocks during the recent selloff. South Korea’s Financial Supervisory Service said it will monitor short selling and whether brokerages are following trading rules.

“The big concern here is wealth destruction, that is investors capitulate and sell, triggering a snowball effect,” said Gavin Parry, managing director of Parry International Trading Ltd. in Hong Kong. “If this continues, governments in the region will most probably step in.
Korea Teachers Pension, which manages about 9.5 trillion won, plans to buy more stocks if prices fall further, Chief Investment Officer Lee Yun Kyu said by phone today. Korea Teachers has room to invest 300 billion won for the rest of the year, he said.

I think we’re now at a bottom,” Lee said. “It was really a broad-based sell-off so that we plan to add evenly across sectors.”

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