To all but their colleagues, traders can sound unintelligible when shouting across the trading floor. “How’s Apple?” one yells. “Crowded trade,” comes the shout from the other side of the floor. Sounds like crowded train-a good fit because a crowded trade is a situation in which most of the players are aboard, a setup for eventual collapse. The wiser man, then, would stand down.
Today, the entire market is a crowded trade (or train, if you like). Here’s a look at how the participants feel and behave:
Fund managers are all in, holding almost no cash. This means they will have to start liquidating immediately when redemptions begin coming in.
Individual investors, likewise, have niggling amounts of cash in investment accounts, meaning little to buy with.
Traders, per the Commitment of Traders Report are lopsidedly bullish.
These conditions do not presage a significant move up. Quite the contrary.
Meanwhile, the market trades heavy (trader jargon for the sense that it doesn’t want to rally). It will be said (by the bulls) that it is consolidating in order to charge North again. Hmmm…
Maybe, but the data on the economy is beginning to implode, casting doubt on the bullshit we get from government reports:
Wholesale Sales quit “recovering” five years ago, now going negative.
The Baltic Dry Index, which measures changes in the cost to transport raw materials, has fallen below the level of thirty years ago, indicating lots of excess shipping bottoms with no goods on order for transport.
Retail sales plunged twice as much as expected in February. Worst back-to-back drop since October 2009.
Hardly a healthy picture. The question is, will the economy catch up to a market that’s priced for perfection? Doubtful. I’m fading that trade.