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May 03

Calling Out The Top Callers

Is it just me or has this most recent all time high been accompanied by more top calling than the previous ones? Maybe it’s just my twitter stream but I feel like we’re entering a new phase of top-calling, where now it’s not just anyone, we’re told it’s ‘professionals’ or ‘respected’ technicians that are saying it, so we’d better pay attention.

I would hope to include myself in that description so I’m a little perplexed by what it is they’re seeing that I’m not.

I realize there are some things they might be concerned about; earnings, growth, margins, Europe, China, the list goes on and on, then there’s technical divergences on everything which means we could be close to a turn.

Well, OK, that could be true. But all of those things are just the ‘set-up’ part of a trade aren’t they? What’s your trigger? Aren’t you missing something? Oh, it’s that inconvenient confirming thing that’s defying you – PRICE.

Here’s what price has been doing for the last six months:-

AlphaCapture

Wow. Price sure doesn’t seem to care about any of those things everyone else is worried about. I wonder if price even knows. Well actually price does know. Price discounts everything.

And without price confirming your rationale you have nothing. You’re not even predicting, because that implies it’s well-reasoned, you’re just guessing. Calling for a top when price makes an all time high isn’t brave, it’s foolish.

Here’s what you should have said to your clients: Here are all these reasons to be bearish, BUT the market continues to make all time highs, so UNTIL price confirms our bearish thesis, you should stay long.

Instead, you’re guessing that price will confirm soon, so people sell out on your call for a top, then when price makes a new high they’re screwed. You’re still bearish, and now they’re missing out on higher prices. Great job, top caller, it’s OK it’s only other people’s money. You might even get a bonus for the commission you generated.

Think of it this way, if it really is the top, and I mean THE TOP then won’t it be like other major tops where you had weeks, sometimes months to act and successfully avoid the worst? Don’t guess. Wait, and act on evidence.

AlphaCapture

Take a good long look at the chart above. It’s the S&P 500 since 1953.

Now, tell me with a straight face that with less than a dozen major tops in the last 60 years you’re arrogant enough to think you can call one to the very day.

Are you sure you don’t want to rethink or qualify your call now I’ve put it in context for you? You understand what it is you’re trying to do here. You still think you’re that good?

Now, you may be right, and I will look a fool for having this on my blog forever. You might call it to the day, maybe you can go intraday and call the top tick. See if you can tweet it. You’ll be lauded forever for calling the great top of 2013, hell you could probably even put it as a skill on your LinkedIn profile – ‘Top Calling.’

But let me tell you something, in the long run calling tops and bottoms is a fool’s game. The market just loves to humble in the most brutal fashion, those who think they’ve mastered it. I’m reminded of Nicolas Cage as Stanley Goodspeed in The Rock turning to Mason saying “the second you don’t respect this, it kills you.”

 

 

5 comments

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  1. serendipitoustrader

    Jon – I think you may be over-reading the comments of people who are taking bearish positions here. To me, it sounded like there was a good risk/reward to be short the market given that we are / were at a significant point of resistance. The odds probably favored some retracement here – nobody knows if it is a top or a normal correction.

    1. Jon Boorman

      Agree nobody knows, that’s the point. but I’m referring to people who said it HAS topped, or it DID put in a top, not it may have, or could have. It’s irresponsible, it’s an attention seeking vanity call.

  2. Adam

    I thought it was odd that you pulled out of long S&P, isn’t this a bit hypocritical now? Sure, you didn’t say it topped, but your money did. As far as I could tell it’s price action at the time had violated no upward trend. But you didn’t let it run, because it was just too hard to believe it could keep going up.

    1. Jon Boorman

      If you’ve followed my blog posts from the beginning you’ll know I’ve been very clear that the futures system that I post trades for is a very specific one, one of the core parts of it is riding ‘efficient’ trends, so sometimes we can be long a market that’s trending higher but if it becomes volatile or inefficient the system will either give an exit signal or activate a trailing stop reflecting the new risk/reward. The only reason we ever exit any position, futures or equities, is because the entry rationale is invalidated, it’s never based on subjective opinion. Specifically on the S&P futures position I only started this blog on 1/27, and took the long entry on 1/28 at 1490.75. It rode it for 50 points, exiting on 4/4. It did it’s job as the next two 2 weeks saw extreme volatility including a 60 point range in just 6 days. It then steadied and with today’s breakout we’ll be long again Sunday.

      Throughout that time however I continued to ride all my equity longs that were working, there were up to 29 of them, and I posted updates frequently. I also made it clear in our most recent long entry ($ADBE) that it was “the first new equity position for over a month, possibly a reflection of the fact that although many of our existing ideas continue to work, we hadn’t been finding many new opportunities. Until now that is. I’m suddenly seeing lots of good set-ups out there so we could be kept busy in the next week or so.”

      So in fact I had been doing exactly what I implied the ‘top-callers’ should have done in my post. I wasn’t adding new positions and I was only selling those that invalidated. I never said to short, sell, and I never actually said to not buy, I simply never saw the opportunities again until this week.

      I do take your point however that in the absence of reading everything I’ve ever posted, or even this reply to your comment, it may be easy for others to draw similar conclusions to your own, and think the futures position is somehow a top-down market view instead of a condition-specific trade, so I may just not post futures positions going forward, or else choose a less complex futures system to record here so it would be more intuitive to people.

      Thanks for reading and commenting.

  3. Augustine

    I love the people on stocktwits who say they just went short some more yelp or whatever that is just blasting upward! Good luck with that eh? I’ve got a foolish call for you: the nasdaq is going to test its all time highs again. You heard it here first ;)

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