Monday, February 25, 2008

More Signs Of The Negativity Bubble

More signs of the negativity bubble surface on a daily basis.

There are front page articles on stagflation fears, the media talks about bank write-downs endlessly, the general public thinks the odds of recession are near 100% and that the outlook for the stock market is terrible.

And the fact that the fed funds rate is 3.00% and going lower next month seems to be lost on most market participants. Not to mention that unlike 1999-2000, stocks are historically cheap relative to both earnings and interest rates.

The chart above shows that short interest on the NYSE just hit a new record. Yes, record. This is as much evidence of the current negativity bubble as anything. And while I am not trying to use this to call a bottom in the stock market, at some point it will matter and will likely lead to a huge rally.

Just something to keep in mind...


At 1:10 PM, Blogger Ilko said...

Hi, I agree with your statement that there is a negativity bubble out there. Heck, I even believe that the pain trade right now is higher. However, I don't think you can make any strong conclusions from the fact that the short interest is at an all-time high. That number will almost by definition always go higher. With the proliferation of all sorts of money managers and the expansion of the market in pure, nominal, dollar terms, this number will go up. That's why I think it is not that meaningful. I think the short interest ratio (short interest divided by an average daily volume figure) is a more meaningful number. If you look at that ratio, it is at levels not seen since 2000-01. That is not bullish.


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