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The Lemmings

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kurtyordy

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Aug 28, 2007
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Throughout history, the smart money has always been made by going against the current direction of the lemmings. Tech bubble, lemmings were long, short positions cleaned up. Real Estate Bubble, lemmings were buying, sellers were cashing out at a premium.

So now, the lemmings all seem to be running short. So is now the time to be running long? I know there are a lot of fundementals driving the markets, but the lemmings are one of the most powerful.

The only danger I see in Lemming mentality is the danger of going against the lemmings to early in the cycle. Back in the stock crash of the 20's I read that there were many people during the days of the crash that put more money in to go against the lemmings, but they were too early, and the wave of lemmings overpowered them and squashed them.

Is anyone else seeing this? Is my analysis way out of wack?
 

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Analyzer

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Aug 31, 2007
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There's no merit in merely going against the tide. You still need to analyze each investment by yourselve.

Regarding you concern of being early I guess that if you're investing for the long term and not leveraging you positions its hard to see how you can be "squashed".

On the other hand the odds of the market going down further are very real:

1930, 1962, 1987, 2008


But the bottom line is no one will be able to determin the market bottom just as no one is able to predict exact market tops.
 

hakrjak

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Sep 15, 2007
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You are talking about contrarian philosophy. Read more about it here:
http://en.wikipedia.org/wiki/Contrarian

I too believe that when Joe Six pack starts piling into something, be it stocks, or real estate in a certain city, or whatever -- it's time to exit stage right. I was one of the first on the RDPD boards to begin advocating getting out of California and Florida before the crap hit the fan.

"During the Dot com bubble an investor would have profited by avoiding the technology stocks that were the subject of most investors' attention. Asset classes such as value stocks and real estate investment trusts were largely ignored by the financial press at the time, despite their historically low valuations, and many mutual funds in those categories lost assets. These investments experienced strong gains amidst the large drops in the overall US stock market when the bubble unwound."

Cheers,

- Hakrjak
 

Edge

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Sep 20, 2007
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So now, the lemmings all seem to be running short. So is now the time to be running long? I know there are a lot of fundementals driving the markets, but the lemmings are one of the most powerful.
I'm not convinced that all the lemmings are short this market. We were at highs a few months ago but now have a declining 200dma, 50dma, and 20dma with the 50dma below the 200dma and the 20dma below the 50dma. I don't think that is a picture drawn by lemmings getting short, I think it is big money getting short.

I think the lemmings are still watching Larry Kudlow talking about an oversold “goldilocks†economy. It all really depends on your time frame. I think we are in a bear market that will have brief low volume rallys that can bought for days or weeks, but overall we are in a bear market and Joe sixpack isn’t net “shortâ€.
 

andviv

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This is just another proof that I am clueless about the market.... edge, I have no clue what 200dms, 50dma, and 20dma mean. I google it and found out the meaning... 200-Day moving-average, but still it has no real 'meaning' for me.

For what I get from you guys here, you seem to think we are still going down so shorting is still in order?
 

Edge

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This is just another proof that I am clueless about the market.... edge, I have no clue what 200dms, 50dma, and 20dma mean. I google it and found out the meaning... 200-Day moving-average, but still it has no real 'meaning' for me.

For what I get from you guys here, you seem to think we are still going down so shorting is still in order?
It all depends on your time frame. I don’t see any reason to buy and hold this market right now. We are in a down trend and I don’t see any reason to believe we have seen a long term bottom. There are opportunities to make money on the long side during down trends, but overall, I will be net short until the trend changes.

When I see a declining 200 day moving average, it tells me that there have been more sellers than buyers over the last 200 days. In limited investment accounts such as my 401(k), I went to cash when the 50 day crossed below the 200 day. That picture told me that the 50 day trend was changing the direction of the 200 day trend and that 200 day trend doesn't turn around over night.

I obviously use shorter time frames with an eye towards the longer time frame on my other investment accounts and structure my position net short with options, but that is a much more active account.
 

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