We’ve Seen This Movie Before It’s Deja Vu All Over Again

The above quote is from the file of the inimitable Yogi Berra, former catcher with the NY Yankees. Since we are in the early throes of baseball season and my good friend Tim Melvin is in 7th heaven with his 1st place Orioles I thought using some of Yogi’s famous quotes (all in italics below) would be applicable to our current market situation; or at least bring a chuckle or two.

We can draw parallels between strong market moves and extremes in sentiment. I have pointed to several different measures of sentiment in the past – my favorites being VIX, equity put/call, polls (AAII and II), consumer sentiment and Rydex ratio.

Sentiment in March and April had reached high bullish levels – a reason for multi year highs in price. Currently, market sentiment is as bad as we’ve seen it in recent years. We could go back to last fall to find as much distaste for equities as we have now. Palms out – sell anything and stay out. Far different than a couple months ago – but why such a sudden shift?

The future ain’t what it used to be.

Facebook. Never mind the fact it was the most hyped IPO in the history of mankind (let’s HOPE it dies down and we can start talking about other things). There is no company on Earth that could live up to the promise. The public may have been duped – once again – by the suppliers.

That massive share offering was a deal killer for those buying in the aftermarket. Who won in the deal? Clearly Facebook but also banks, brokers and the early investors. The retail public with an insatiable appetite to participate – oh and Mark Zuckerberg wanted that as well – were taken to the cleaners when the share offering was raised several times.

Facebook the company will be fine – but they got a valuation probably not deserved for a few years from now. We’ll have to see. Basic economic principles of supply/demand dictate price. In this case supply met the huge demand for shares. Heck, who wants to miss the next Google, Ebay, Microsoft or Apple?

After missing those opportunities the retail investor must have been kicking themselves – who cares if Groupon, Zynga and RennRenn are down, who cares if Globe.com was the most successful IPO ever and is extinct. They wanted Facebook at any price and wanted it BAD – and they got it.

When you come to a fork in the road….Take it.

That Facebook IPO told us a lot about market perception. Could they have taken the company public during a better time? Sure, when these big events happen you can never really predict how that is going to pan out. I didn’t expect too much of a market pop from Facebook due to the reasons outlined above. So, do we blame Facebook for the markets problems?

I don’t think directly they are the reason. Technically the market is on shaky ground (see chart). So far in the month of May we have only seen the market (SPX) advance ONCE – and it was small. Indicators are very oversold (some ridiculous) but that doesn’t mean it cannot stay oversold. Oh, there will be a rally, when the selling abates – I suspect at some point this week there will be a ‘stick save’ into the end of the month.

There are eight trading days left in May and being down 7.3% for the month is a bit too extreme. However, I’m not in the knife-catching business, so I will let the market tell me when the selling stops and buying resumes.

You can observe a lot by watching

Bob Lang is the Senior Market Strategist for options trading newsletter Explosive Options