Tuesday, October 09, 2007

Are Traders Becoming a Bit Too Speculative? SentimenTrader

Jason Goepfert from SentimenTrader has put up a very interesting chart that might point to some slippery terrain for stocks and tech stocks in special. With almost no or only limited exposure to the housing slump it should be no surprise that tech and internet is one of the leading sectors. I also think that the very high beta has lead to a run after the Fed has lowered rates. To quote Jason "But at some point it becomes too much..." and David C Nelson " Winning Stocks continue to lead: Remember it is GAAP (Growth at Any Price) not GARP (Growth at the Right Price) that is leading the charge". The valuation question will be asked when sentiment has already shifted and the momentum has turned.....

Jason Goepfert vom SentimeTrader hat hier wie ich finde einen interessanten Chart der eine Menge über die aktuelle Marktstimmung aussagt. Da fast kein Bezug zum Immobiliensektor besteht sollte diese Outperformance nicht richtig überraschen. Zudem wird traditionell zumindest in Anfangsphasen wenn die Fed lockert nach dem höcht möglichen Beta gesucht. Der Chart könnte darauf hinweisen das die Grenzen doch momentan doch etwas "überdehnt" sind.... David C Nelson bringt es mit seinem Kommentar wohl treffend rüber "Winning Stocks continue to lead: Remember it is GAAP (Growth at Any Price) not GARP (Growth at the Right Price) that is leading the charge." Die Bewertungsfragen kommen immer erst dann ins Speile wenn die Stimmung bereits gekippt ist.

Are Traders Becoming a Bit Too Speculative?
Whenever one sector or asset class greatly out-performs others, it tends to generate a lot of interest among traders – we all want to be involved in what’s working now.


Tech has been an obvious out-performer of late, and predictably that has sparked interest among those looking to put money to work. More specifically, the internet group has been very hot, so we’re starting to see money flowing there. And it might be overdone.

The reason is because money flowing into the group seems like it has crossed the line into “too much, too fast”. One way to see that is to look at the assets going into the Rydex mutual funds.

That fund family has the Rydex Internet Fund (RYICX) available for its investors, and they release the asset levels in the fund daily. I’ve plotted the past few years of those assets against the NAV of the fund below.
enlarge / größer

We can see that currently the fund has nearly $60 million in assets. That’s peanuts compared to the market value of the sector, but we’re operating on the idea that Rydex traders are a proxy for a broader population of traders, behaving in a similar manner, and I think that’s a sound theory.

What has piqued my interest here is that over the past seven years, whenever assets in the fund have reached the $50 million mark, it has been an apparent indication that traders in general have become overly enamored with the sector’s prospects. The go-forward returns in the sector have been sub-par (to put it kindly) when we’ve seen this kind of activity.

The three-month forward return in Amazon (AMZN) was -8.3% with 2 of 8 occurrences showing a positive return. In eBay (EBAY), it was +1.0%, but with only 3 of 8 positive. For Yahoo (YHOO), the future three-month return was a dismal -8.9% with only 1 of 8 positive.

Even some of the tech giants that aren’t so glued to the internet specifically didn’t fare so well. Microsoft (MSFT) averaged -5.7% with 1 of 8 positive, Intel (INTC) was -9.3% with 1 of 8, and Apple (AAPL) was -5.1% with 1 of 8 positive as well.

Rising speculation coming out of an oversold market is a good thing, since it keeps people buying and prices rising. But at some point it becomes too much, and prices are more likely to either decline as that speculation ebbs, or go into a much more choppy environment – kind of a two steps forward, one step back kind of thing. I think we’re quickly approaching that point.

>Bespoke has put up as they call it a more bullish chart for the S&P 500 % of S&P 500 Stocks Above Their 50-Day Moving Averages. I´m not so sure if this is really bullish.

>Bespoke hat eine nach eigener Aussage einen bullishen Indikator hinsichtlich des S&P 500 gefunden % of S&P 500 Stocks Above Their 50-Day Moving Averages. Ích bin mit nicht so sicher ob das wirklich bullish zu sehen ist.

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