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At the moment, the "extreme selling" in question is a small fraction of one percent of the most hard hit of the major indexes.
I have the same reaction to the near-hysterical headlines about the emerging markets ("rout," "panic" and "sell-off" are popular headline terms). From the headlines, you'd think the emerging markets had lost a quarter of their value and that their governments were back to defaulting on debts and privatizing companies. They haven't and they aren't.
The EM funds that we've written about (Seafarer, Amana) or are working on (Grandeur Peak, William Blair) have given up 3-5% this year and have trailing 12 month returns from (3) to 10%.
It's hard to know how much direct EM exposure the average US investor has. The average pension fund is under 5%. If that's broadly representative of how much most folks are exposed, then your e.m. exposure has cost you something like 0.15% in the past year.
That doesn't deny the prospect of real and continuing problems, but it does strike me at the disconnect between the headlines (driven by the need to attractive viewers) and the market activity (a routine but annoying correction) is substantial.
Reply to @Ted: False choice. I think the concepts of oversold and overbought are ill-defined with no practical value other than for making headlines as David suggests or usually talking one's book.
SPY w/RSI of 34.91 on the daily chart. DIA at 32.83. QQQ at 43. IWM at 39. I'd say getting to oversold, but not "solidly oversold." However, like cman notes, "oversold" and "overbought" are not well-defined.
Edited to add: Apple -6% AH after disappointing in terms of guidance and iphone sales.
Edited again: Apple seems to be holding $500. Bounced off $500, now $504 (-8.5%)
Sentiment nailed this recent decline. As previously posted (1/11/14) bullish optimism was at historic extremes in many sentiment indicators while others were at extremes not seen in many a moon. And "unless it is different this time ...... a correction of some magnitude is just around the corner." So where do we go from here? I haven't a clue! It could depend to what degree fear comes back into the market. So far there seems to be little to no fear in the U.S. markets over the recent nearly 5% rout. My concern is sentiment was even more bullish than at the 2007 top.
Sentiment may have drifted up due to the lack of any recent correction or even consolidation to speak of. Frankly, I welcome this action....and am hoping for about 2 or 3% more. I really have a hard time feeling that the market is oversold at this point.
That's the short term view. Here's their lookback at the pullbacks in the past year, for more perspective, with comparisons of oversold levels going back that far. There's a lot more context in this data set, which they also update from time to time. Bespoke is a good outfit.
Reply to @AndyJ: The problem is arbitrariness and equivocation. Works great to sell subscriptions that publishes trading strategies/signals I suppose.
You can define a zone as 1 deviation above some moving average and call it yin and similarly 1 below as yang. Just by definition sometimes it is in the yin and sometimes in the yang. The parameters are arbitrary. If you take a short moving average like the 21 day, 2 deviations used in Bollinger bands, you see different yin and yang in the small squiggles. You take a longer moving average, the yin and yang of the of the small squiggles becomes meaningless. So, which level of squiggles is meaningful and for what? This is precisely the underlying discomfort in the response from David.
The equivocation comes from the use of words like overbought and oversold which has a colloquial interpretation of something being overdone and implying some kind of reversal as opposed to just being arbitrary definitions. This headline, for example, evokes the kind of reaction David had precisely because of that equivocation, not because solidly oversold is understood as just an arbitrary definition.
Reply to @cman: The thing is, when you look at the data, it's fairly straightforward what the parameters and assumptions are. No one should assume what a single word like "overbought" or "oversold" means without looking at the data and the context. It's information. The important things are the data & the context. It's there for whoever wants to, to study and draw their own conclusions for their particular situation.
The headline isn't very helpful, right, but I'd choose to look at the information and draw my own conclusions. And look at other charts, say of the 100 and 200, if that was important to a particular decision I wanted to use this kind of info to help make.
Reply to @cman: Is this all you got? It has been idiom for a looong time, meaningful or not. I am not defending it, though I myself think it has genuine meaning and use, though this is not the place for that discussion. But you cannot get away yet again with airily and dismissively telling someone they are off-point. I get your objection, sure.
Comments
At the moment, the "extreme selling" in question is a small fraction of one percent of the most hard hit of the major indexes.
I have the same reaction to the near-hysterical headlines about the emerging markets ("rout," "panic" and "sell-off" are popular headline terms). From the headlines, you'd think the emerging markets had lost a quarter of their value and that their governments were back to defaulting on debts and privatizing companies. They haven't and they aren't.
The EM funds that we've written about (Seafarer, Amana) or are working on (Grandeur Peak, William Blair) have given up 3-5% this year and have trailing 12 month returns from (3) to 10%.
It's hard to know how much direct EM exposure the average US investor has. The average pension fund is under 5%. If that's broadly representative of how much most folks are exposed, then your e.m. exposure has cost you something like 0.15% in the past year.
That doesn't deny the prospect of real and continuing problems, but it does strike me at the disconnect between the headlines (driven by the need to attractive viewers) and the market activity (a routine but annoying correction) is substantial.
David
Regards,
Ted
Edited to add: Apple -6% AH after disappointing in terms of guidance and iphone sales.
Edited again: Apple seems to be holding $500. Bounced off $500, now $504 (-8.5%)
Press
>> concepts of oversold and overbought are ill-defined
sure
>> with no practical value
What does have?
You can define a zone as 1 deviation above some moving average and call it yin and similarly 1 below as yang. Just by definition sometimes it is in the yin and sometimes in the yang. The parameters are arbitrary. If you take a short moving average like the 21 day, 2 deviations used in Bollinger bands, you see different yin and yang in the small squiggles. You take a longer moving average, the yin and yang of the of the small squiggles becomes meaningless. So, which level of squiggles is meaningful and for what? This is precisely the underlying discomfort in the response from David.
The equivocation comes from the use of words like overbought and oversold which has a colloquial interpretation of something being overdone and implying some kind of reversal as opposed to just being arbitrary definitions. This headline, for example, evokes the kind of reaction David had precisely because of that equivocation, not because solidly oversold is understood as just an arbitrary definition.
Not the point. It is the attempt to make something without practical value imply something of value with equivocation to sell subscriptions.
The headline isn't very helpful, right, but I'd choose to look at the information and draw my own conclusions. And look at other charts, say of the 100 and 200, if that was important to a particular decision I wanted to use this kind of info to help make.
Regards,
Ted
In an effort to make a simple point more complex, here are some other choices for "equivocation"
Ted, here's your Wordle for the entire thread:
The market bounce back should improve the higher than normal level of grouchiness in the restless pack.