Quote:
Originally Posted by Vanity
I don't base my macro calls on technicals. I've stated in the past that my most successful trades (i.e, my most successful trade at the start of the New Year which brought in +70% in 3 weeks) are based on pure fundamentals. What are these fundamentals you ask? Look at Options pricing. Follow the money. The smart money.
Back in March we had a large buyer of $SPX long calls when SPX stood at 1550. 85,000 contracts were bought-up by one-single-buyer. The entire trade was worth billions. Right when talks came in around that time of a pullback, a correction, a crash, etc, we had a large buyer step-up to make a long call on the market. Very rare in size since the bulls in this market tend to sell puts to "be long", actually buying 85,000 call contracts meant the SPX actually had to "go up" to make money. Ergo, bam, we went up.
Well now, Options pricing for SPX Skew is looking ugly. Skew climbed 10%+ in 5 sessions. Just trading within the mindset frame of this bull-market since 08', 100% of the time this Options skew has led to a drop of 6-19%. Right now, it's pricing in a -13% drop, but I like to wrap that within 10-15%. Obviously this is not a "guarantee" the market will fall. But certainly it's not a buy-signal for all the bulls who've been in the game since 2008.
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I do realize that this thread is supposed to be specifically about “technical analysis,” but new investors reading this need to understand that technical analysis is generally used for short term positions in equities. If you plan to hold your position for the long term (at least a year), fundamental analysis and the Peter Lynch method of investing will ultimately prevail.
While I agree with your statement of “following the smart money,” my definition of “smart money” may be different from yours. The majority of mutual fund managers are simply trying to match their benchmarks. When you account for fees/expenses, the majority of fund managers are LOSING to their benchmarks. They’re “Closet Indexers.” They claim to be active managers, but most have a very heavy “passive position” and a very small “active position.” Most aren’t taking any wild chances and as a result end up matching the S&P before fees and falling short after fees/expenses. I honestly believe that anyone with a basic amount of knowledge could run a top 50% mutual fund.
My reasoning: look at all the huge Large-Cap Growth Mutual Funds. They’re pretty much all doing the same things: Grossly over-weighted in Apple. Over-weighted in Amazon, Google, and VISA, under-weighted in Exxon and Microsoft.
The only group of fund managers beating their benchmarks is the active stock pickers. Even in those cases, they’re only beating their benchmarks on average by a couple percentage points.
Conclusion- If your version of “smart money” is following the big players then theoretically you should be heavily invested in long Apple and Google positions and heavily invested in short positions in Exxon and Microsoft.
I get what you’re saying and you’re obviously very knowledgeable on the subject, but I constantly question the idea of following others (even the most successful investors). I don’t believe in investing based on tracking high volume trades.
It's very easy to make money in a market like this. People are buying off emotion and everything is appreciating. However, I'm curious to know how many of you did in 2011 when the market was stagnant.