THE DOT - if this turns orange or red be alert

Monday, April 12, 2010

Brainstorming Monday

1. Earnings season kicks off after market close today but the real blockbusters starting tomorrow and will bring a new direction to the market as more and more indications for a top have gathered will get ugly - but the real stuff rather comes summer time end of June.

excerpt 1

Speculative Mania Is Now At May 2000 Bubble Levels

As SentimenTrader points out, we are now approaching uncharted territory when it comes to speculative activity, and are back to 2000 bubble levels. "The heavy concentration on bullish strategies, among all classes of traders, pushed the Options Speculation Index to another recent high, beyond anything we saw at the January peak or in recent weeks. The only comparison in the history that we have are the weeks around the peak in the spring of 2000. It seems we've entered a whole new realm from anything we've seen over the past nine years, so who knows how much longer - or more extreme - this can go."

The last time we were here, the tech bubble was about to pop and result in 50%+ losses for the Nasdaq virtually overnight. This time around, this is not a tech-isolated bubble. This is a global bubble fueled by the endless money printing insanity of the Central Bankers. When it pops it will take down every asset class with it. But for the smart and dumb money, one must stay invested to have a job on January 1, 2011, not to mention bonus - look for the peaks from 2000 to be soon taken out as now everyone jumps on the same side of the boat.

Some more color from SentimenTrader:

Small traders, those trading 10 contracts or less, used 40% of their option volume to buy speculative call options last week. That's the most since early May 2008 when the S&P 500 was 230 points higher than it was for most of last week.

Large traders spent 43% of their volume buying call options, the 2nd-most of any week since the year 2000 (March 10, 2000 was the highest, at 43.1% of total volume).

The second coming of the Greenspan bubble is now here, is undeniable, and has now reached unprecedented proportions. Next stop for the Dow will either be 36,000 as there is little to stop a ponzi from exploding at this point, or zero. The marginal need for new influx of capital to generate the same returns gets greater and greater, so in the next few months we will likely see either unprecedented meltup or crash. We are now past the point of a stable, smooth market as ROE self-cannibalization is now here.

excerpt 2

Irrational Exuberance Is Here: VIX Lowest Since July 2007 As Options Speculation Highest Since Dot Com Days

The VIX has just hit the lowest level since July of 2007 as Sentiment Trader reports that "speculation in the options market has spiked to its highest levels since the spring of 2000." The government's endorsed moral hazard policy has now lead to the worst of both the and the housing bubbles. There is nothing that can ever again default or lose money: Uncle Sam is there with your money to guarantee it. Ben Bernanke sees no bubble anywhere.

At the same time, as VIX plummets, MOVE, or the Treasury volatility index, has surged to multi month highs.Once again, the market realizes that the next big shake up will not be in equities, whose worth is only there for so long as the government can keep issuing its pieces of paper, but in the Treasury market. And even as the Dow 36,000 is now guaranteed, a 4 Year at 5.5% is seeing as increasingly likely.

Presenting the ratio of the VIX to MOVE

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