Tuesday, June 24, 2008

If you whack it, they will come

There seems to be a phenomenon in the financial news/entertainment sphere (a region that Macro Man in some way inhabits via this space) that, to paraphrase Field of Dreams, "if you whack it, they will come." In other words, capitulative lows in equities tend to be accompanied by capitulative spikes in traffic.

Macro Man has commented on the utility of tracking traffic figures in the past, though he's hardly the only one. The charts below provide an example of the "traffic signaling capitulation" phenomenon. Consider the "Bear Stearns bottom" put in on St. Patrick's Day of this year, marked with the arrow below. Not only did it mark the nadir of the S&P 500 for the year, but was followed by a rather sharp rally in the ensuing week (and indeed couple of months.)
Comparing the chart above with Macro Man's own daily visitor figures (from Google Analytics) is instructive. As you can see, the blow-off low generated a surge in traffic well in excess of anything observed a few weeks on either side.
Which brings us to today. Last week's price action in equities was pretty bad, to say the least. Over the weekend, Barry Ritholtz observed that traffic at his site was not indicative of a captiulative low; in fact, it went down ever as stocks did. Macro Man can report that he's observed the same thing, with traffic edging lower in line with the market. While it is tempting to put down the decline in traffic down to the onset of school holidays in the US; however, a quick geographic study reveals that traffic declined across just about all major countries, including those (like the UK) where the kids are still in school.

What are we to take from this? Well it seems as if despite the horrible market price action, no one (or at least no one who reads this blog) is panicking. And until panic sets in, the most likely direction for equities is down, down, down.


spagetti said...

have similar feeling

many think that everyone else is short already so mkt wont roll over. even those who think it will roll over, dont think it will roll over now

where does the S&P need to go for people to panick? below 1300 ?

Charles Butler said...

I've noticed it, too. Equities calmly deflating. In my case, prior commitments prevented me from jumping on at the opportune moment. So I wait for another chance - probably mistakenly and likely not alone.

Macro Trading Ideas said...

According to me, my sensation is that people are impotent and don't know what to do...you can't find a real hedge, and people see their portfolio eroding day by day. Some prices seem at extreme level, price stocks' levels of a half or a quarter than before don't mean nothing, they can go worst..
we don't capitulate because as traders we now our risk levels or our head closed our books!! and remember, someone is doing good money, but this isn't a zero-sum game anymore!!!
Until now we had sector-panic, with a few systemic-risk feeling (see yen collapse..), but going forward??

Richy Rich said...

How does a bear market end? Well hard to say as there are usually so few players left to witness it.

So I would propose an alternative scenario. If readership is proportional to the number of participants and a true bottom is when everyone has left, then this time around your true bottom will be typified by record low readership.

As a high readership bounce reflects plenty of players still in the game this should now be relabelled as a strong indicator of a dead cat bounce - as has been beautifully illustrated in your post today!

Last one out switch the lights off...
I'm off to retrain as a UK tanker driver ..

D said...

Macro Man - your thoughts echo mine. My survey of forums/blogs has virtually everyone calling for a bounce at these levels. I think there will be a lot of stinky fingers on this trip. Recent history has shown buying a break of 1300 on S&P500 has been the smart money move...it's just too easy!

As far as the secular bottom, I wouldn't stress-out about even an IT bottom until at least the middle/end of July.

Anonymous said...

forget the nutcase, i mean Barry Ritholtz

Did you check out the rate hike by indian CB ? Where are the Asian markets headed ?

Charles Butler said...


You're right about lots of bloggers continuing to look for moments to go long, as if that were the money play. The incoherent part is that I don't think there's very many who would own up to the bull market argument that's baked into the strategy.

Macro Man said...

D/CB...what strikes me as odd is the almost fetishistic desire on the part of erstwhile bears (both sell side any media-y buy side guys like Doug Kass) to call the bottom in banks. I wrote about this a few weeks ago, and still cannot understand it. There's nothing wrong with having a punt, of course...but there's a pretty damned big difference between, say, buying low delta July call spreads on BKX and covering banking shorts and going long.

In my mind, any rally we get as a result of the Fed and/or quarter end window dressing is just an opportunity to layer fresh shorts at better levels. And while I can just about contemplate the idea of (very) selected longs as part of a micro term punt, very tight stops would need to be a central part of such an endeavour.

The structural book remains in full-fledged bear mode, however...

D said...

I was at a seminar in November 2007 and was the only cat in the place that said short the book on financials. Everyone else was talking up the opportunities in financial stocks. I laughed at them and said, I will sell you what you want. This is a once-in-a-lifetime magnitude kind of problem. The i-bank business model is dead. The mortgage market is pseudo-nationalized via agencies and we haven't even heard boo about 2nd lien, commercial, or consumer debt. The anecdotal LBO case I am watching is The Tribune Company. Zell leveraged them up and is on the verge of defaulting. He has been unable to sell the world famous Wrigley Field and Chicago Cubs. He has a huge payment coming due...

I prefer a bull market any day over a bear market, but it is what it is.

Anonymous said...

Is "capitulative selling" really "bargain buying"? After all, every seller must have a buyer and it takes real buying to raise prices while prices can fall on thin volume. By the way, who would these "bargain buyers" be? Pension funds, hedge funds, endowment funds, long term investors or other strong hands?


D said...

Me, and I'm not marrying anything LT yet. I do speculate ST via financial sector etfs.


Anonymous said...

My take is that we're in distribution mode. This is the stage where the big boys unload orderly and the masses/average joe accumulate.
It's accompanied by the usual poeha in the media which in my opinion is still positivily orientated, and analysts and traders who claim this is a great buying opportunity.
Watch out for fantastic offers from banks! These funds are only created to make it possible for the big boys to unload at still interesting prices.