A friend who is a fund manager asked me the following question today: What’s the greater fear, missing a rally, or owning equities that go down?
Today’s rip-roarin expiration day market rally might help answer that question. The fear of missing the rally certainly appears to be the much greater sin — at least to most professional managers today.
Now consider this interesting variation (This one should definitely get the attention of trend followers).
John Roque — the very smart technical analyst for Natixis Bleichroeder — John relates how he continues to hear on CNBC and from clients that “financials are cheap…we’re doing selective buying.” Or, “We’re buying financials down here. They’ve been destroyed.” Or, “The financials are raising capital and getting the deals done. The worst is over. We’re buying some good ones.”
Now, compare that attitude with typical investor interest/sentiment about oil, food commodities, or natural resource stocks. Extended! Overbought! Driven by speculation!
So if you are looking for a true contrary trade, which do you choose:
– The one in a long-term uptrend with no sign of any technical weakness, widely disbelieved the whole way up?
– Or, do you go for the relentlessly beat up, long term down trend — the one if you are buying here,
you are merely guessing the worst is over.
Thanks to John Roque of Natixis Bleichroeder, here’s the relative Market Cap of S&P Energy versus S&P Financials:
courtesy of Natixis Bleichroeder