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From Greed To Fear
Submitted by Jean-Yves Dumont via Evergreen Gavekal,
For the last two and a half years since June 2012, the best strategy for global equity investors has been to buy on dips. The strategy worked because of a very high level of market resilience combined with a (sometimes excessively) optimistic environment. As a result, over the last couple of years markets have tended to recover very quickly from shallow corrections.
However October’s relatively deep and protracted correction caught investors by surprise. The S&P 500, for example, fell almost 10% in a matter of weeks—something that had not happened in more than two years. In consequence the buy-the-dip strategy did not deliver its expected result. This came as a shock; implied volatility reached an intraday high not seen since late 2011.
My method of analysis relies heavily on technical signals, which led me to believe that October’s correction would be a game changer. It looked as if that the impact would take effect on two levels:
Steeper and longer corrections appeared to be back. Going forward, this implied that in times of uncertainty volatility would spike higher.
Investors would think twice before buying dips. Given the adverse surprise they suffered in October, it seemed likely the dippers would be more patient about buying in future. This was pure investor psychology at work.
In December, it looked as if markets disproved this thesis. A small correction started during the second week of the month, but it did not last for long. The dippers quickly returned in force, and some indexes delivered astonishing returns over the next few trading days, subsequently going on to post new record highs little more than a week after the rebound.
But is the December correction really over? Yesterday’s selloff was brutal. And in contrast to the patterns that prevailed over the last two years, the resurgent nervousness among market participants is striking just three weeks after the last rebound. That means yesterday’s sell-off may simply be the second leg of December’s correction.
Where could this second leg take us? First and foremost, let’s wait for today’s confirmation before jumping to conclusions. A lower open in Europe and/or a new intraday low in the US will provide a clearer picture.
But let’s assume that is what we get. The confirmation of a worsening environment would substantiate the change of market regime. Buying dips would become more dangerous. But more importantly, greed/resilience/excess optimism (call it what you will) could turn into another psychological phenomenon: fear.
There are two basic types of fear: the fear of missing out and the fear of losing. The second is more important in the current context. It is the fear of loss that prevails in uncertain times. Some might say that it should not apply today, as the US economy is growing sharply, peripheral spreads are low, and the price of oil is falling, which is good for consumers. Even so, could the fear of loss stage a comeback tomorrow?
To identify fear correctly, it is necessary to monitor several aspects:
The fear of losing money. Everybody hates losing money. It makes us nervous. These nerves can be observed in the option markets (put volumes, implied volatility, volatility curves, etc.). But it is the beginning of the year and there is still plenty of time to recover possible losses. This aspect of fear should be playing a minor role today.
The fear of bad news. This can be any news: Grexit, the oil price slump signaling a weaker-than-expected economic environment, high yield spreads widening as earnings disappoint, etc. This form of fear can be analyzed by looking at markets’ reaction to news. Since June 2012 markets have been in “all news is good news” mode. Could they now be about to switch to a more classic “good news is good, and bad news is bad” mode?
A fearful mass psychology. The contagion of fear among investors is a crucial factor. It is why it is so important to look for confirmations when making investment decisions. Most investors watched yesterday’s market action without acting (probably for legitimate reasons). But will they be so sanguine if the sell-off continues today and over subsequent sessions? Will they remain passive, or will they join the herd? In other words: will fear breed more fear?
There is no real conclusion to all this. What I want to stress is that fear is highly dangerous if it is contagious. As always, the market action will tell.
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Interesting, does my FAZ play make me fearful or greedy? Time to find a buyer...
Be not afraid!
I will believe it when I hear it from Gartman ... i am sure they guy will figure out some arbitrage play somewhere, thats why I guess he gets the big bugs from his clents
by big bugs do you mean scabies
Well then, let's have a look at the Fear vs. Greed Index again, shall we?
http://money.cnn.com/data/fear-and-greed/
It's 19 (extreme fear).
Don't look at me all weird, the Tylers started me on this thing.
I look at you weird because you have a nail gun for an avatar.
Here I thought it was cuz you've only got one eye!
You can't tell by my avatar, but I actually have several eyes:
http://goo.gl/mtfNna
I was going to say something but it would violate my new years resolution.
We spooked some folks.
FAZ = a healthy amount of both
or the fear that my first born will love obama and hillary
I've found that this desire can be countered with Silver Eagles.
Move over Rover and let Yellen take over. BTFD
A whole lot of references to this chart and the "next Fed person to speak" bailout
It's not what you don't know...it's what you don't know that you don't know.
But, but, but.... all the guests on CNBC keep telling me to buy the dip....
Cogent must have a two guys monitor each channel they cover -- so it effectiely will DOUBLE the CNBC viewership!
...And you should - Stocks on the inexplicable mend - via the fast hand of the fed. DIE!!!!
11 Predictions Of Economic Disaster In 2015 From Top Experts All Over The Globe:
http://www.rumormillnews.com/cgi-bin/forum.cgi?read=7670
Extra Credit:
https://www.youtube.com/watch?v=mdPcmeHoTfI
Uhhh..... whatever. Throw-away article. I'm also guessing it was written sometime yesterday.
Yeah looks that way. Oh well, need something till the markets close and we get the latest round of market spin.
Someone will shoot their mouth off pretty soon. That will be the end of the "correction".
Hey bitcoin lemmings, buy the dip:
http://money.cnn.com/2015/01/06/technology/security/bitcoin-bitstamp-hac...
That's odd??
I suddenly feel unusually optimistic.....
shit!
now it's gone!
Can someone go tell Bullard that he's urgently needed...??
By George, watch out for New Yorkers who Double-dip. And for shrinkage too.
"What I want to stress is that fear is highly dangerous if it is contagious."
wow, cosmic dude
almost enlightening as catching a shotgun blast to the face might be detrimental to your health
The only thing we have to fear is.....
reality
Agreed. Though well-intentioned, articles like this are all but useless.
It’s ludicrous to call this a potential 2nd leg (?) of the December correction, given anyone shorting past the November top was annihilated in the machine-driven low-volume holiday squeeze that went to new highs (!), and we’re not yet back to the Yellen lows, with key MAs likely to offer a bit of interim support.
While he means well, the real point is that the holiday ramp may not have been “dippers”, but performance-chasing year-end algos designed for low-volume short-killing before reshorting at the artificial highs they created. In other words, given markets are computer-controlled, we should expect more from pundits than “well, dip-buyers might be disappointed, but I’ll need to see another 15% down before I can let you know, and then you can trade on it, “ as it’s precisely this slow, muddled thinking today’s code was designed to exploit.
Fear, my ass. Just waiting for the fed to start pumping out quotes about how rates will be low for an extended period of time. Fire up the algos.
i think they trotted out williams yesterday to no avail
But Williams said interest rate hikes in June 2015 -- NOT what the markets want to hear... But don't worry, Williams will be scolded and some other Fed Head will say the right words...
Breaking Off Topic News. Critical to Icelands survival going forward. They may be waking up, with Greece about to collapse and Ukraine begging for EU billions. Now, just in on RT. "Iceland considers withdrawing EU application - PM http://on.rt.com/mxm62x"
God bless the Norse, please Wake Up, before the Iron Curtain of EU Communism swamps your nation under the dictatorship of Brussels!
Greece may open the door for a few others, that is probably the real concern.
This has been the case for quite some time, decades in fact.
so, same as it ever was.
I wonder. What codes are written in to HFT programs to deal will dips and protracted declines based on human fear. Does someone write Fear into computer code via special mathematical formulas? Let's be clear! 70% of all trading is HFT compter driven volume. They ARE, in a very real sense, the market movers.
<< The strategy worked because of a very high level of market resilience combined with a (sometimes excessively) optimistic environment >>
The chart is more signiticant than the text from the author -- the reason BTFD has worked is that whenever the markets are down more than 1-2% you get a Bullard, or Yellen, or Draghi, or China leak of more free money.
http://www.cnbc.com/id/102313435
STICK save city baby.
now we're back to From Fear to Greed
Looks like a big ramp up is in progress.
Off the lows!!!
We've become so conditioned and comfortably numb (or is it Comfortably Dumb?), thanks to the Fed and its global club of Manipulators, that we/I won't believe that the House (of cards) is on fire, until it is on fire and our butts are burning.
Until that happens... I'll just yawn, smirk or roll my eyes. Call me a skeptic.
p.s. Has anyone seen "The Wolf of Wall St"? Sometimes things remind me of that. I swear we are surrounded by the types from Stratton Oakmont. Regardless if they call themselves Bulls, Bears or Bells. Only their commissions matter, and only the Flow and The Game matters to TPTB.
im about to puke at this fucking ramp.
spx going green today dummies!
Criminally insane "servicers" are getting hammered over fall out from Ocwen settlement. Yeah!
Once CBs are allowed to trade SP futures they can bring the market to any level they want. It can be highler. It can also be lower to make it look legit. I doubt they'd want it 50% lower where it belongs, but 10%, 20% or 30% lower? Why not? They are well aware of the growing backlash, so give the muppets what they want. I would not be long this market as it is now 100% dependant on politics within CBs.
"The market action will tell"...Lol, waiting for Godot to understand the future.
Waiting for Godot - Wikipedia, the free encyclopedia
Check E-Mini activity at about 13:30. Yellen put down the bearclaw and started buying I bet...
Can we stop calling something that doesn't last a correction? Especially something that only lasts a few days. A correction denotes a mistake or error was made. A mistake cannot be corrected right back to the position of the original mistake and somehow be correct.
It is like a programmer who keeps using the wrong syntax and keeps getting an error. Somebody tells him his mistake and he gets it correct for a few lines. Then he goes right back to making the same error he made before. The guy is still wrong even if he thinks he is correct.
In the case of the market the programmer is your favorite TBTF bank or stock certificate holding CEO. However they got the Fed to change the parameters of the program to accept the erroneous syntax. So now the original error is somehow correct and everyone who knows better is now somehow wrong.
Never fight te fed bitches.....btfd as usual. Bottom has been fixed in.
"........My method of analysis relies heavily on technical signals....."
=
I Need "Something" to Tell Me What To Do and When......
You See how the Human Mimics the "Algo" and thus the "Algo" the Human....?
GI,GO
ALL Mathematical "Models", "Formulas" and "Black Boxes" etc., etc., are a FALLCY on their Face:
Human Nature Cannot be Reliably Quantified.....
Without a Reliable Input any Derivative is Flawed....
This is Why TA, like various other Disciplines, Works Sometimes, but not Always.......
Inflection Points are Reached in EVERY INSTRUMENT at some Point in Time......
That Point is reached based on the Confluence of Human Nature and Mathematics.....
Perception, Not Reality, Drives Prices.........
There is No Mathematical Formula that can or ever will be able to Consistently or Reliably Identify that Point........
Nor is there any "Formula" that can Perceive........
The Answers are in Time itself, Not Mathematics.....
Many Participants want to Believe that a Formula exists whereby you can Push the Magic Button and Out Comes Money....
This is the Timeless Lure that Keeps the Suckers Coming and Losing......
Contrary to Popular Belief, there is No Immunity from this Lure, irrespective of Power, Capital or Position....
At the Real Bottom this will be Crystal Clear.......
Moar?
There is no fear in knowledge and there is enough collective brain power here alone to stop this insanity of up is down, left is right, and black is white. The simple darn fact of it all is, 2+2 does not equal 5, and folks have to get off the collective arse to do something, NOW!
The only question is amongst all the fine players here, is there enough concern to change da wicked ways of money changing to actually stop the train of madness and turn it around for the betterment of the world, or not? For the people of the world, or for the lizards hiding in caves in China?
Why do zionists look and act like lizards? Is it because of the predominant reptilian brain patterns? No dork cheney, not calling for you now. Your time is coming. And hey, where is all your money at anyways? In saudi oil? And, did you say you did not care to earn any moar money, that you want to hurry up and kill off 99% of humanity using one or two of those stolen nukes of yours to start the huge fireworks show, but the babylonian banksters are holding you back...for now?
Hummm...k.
Let knowledge replace fear so that each and every one can prepare for the changes that are on the horizon of uncertainty. The good news is, people are waking up fast thanks to the hardships placed upon them, and they are sick-n-tired of the constant lies and deceptions of govt. The tide is turning into an unchecked fierce anger and unless these cretinous evil things can kill off every soul on earth all at once, sooner or later their number will be up. It will not take much more of a spark to trigger the great revolution of justice seekers and thanks to the total information awareness program, each and every one of these scumbags is known, where they are, cell ph#'s to track and trace, faciabook records and pics, and who they call families and friends. When the time comes, the firemen will kill the forest fire. It has long to long been left to burn out of control.
Last tid-bit to chew on: ever notice that you get a google and likedin cookie every time you come to the Hedge? Yeah, both govt snoopers following your every move, and there are so many moar. Use the get rid of cookies preference options on older Firefox browsers to block, rid, and detect those pesky third party snoops. It is so bad, most people are dropping their phone and Internet service because of the total lack of privacy and an out of control corporate US-nazi govt that spies on everyone, and every thing. Says this months allowance to pay to be spied on, FARK YOU! No moe paying for you to spy on people any moar!! Eat shat and die, yankee!
PS: ATTENTION BABYLON!!! You will pay HARSHLY for stealing our rights to privacy.