Bad news is good news, Good news is good news too.
I almost want to say nothing except, “look at this chart. What else do tyou need to see to know this market is in a bad place.”
This Dow chart should be sobering for anyone who want to invest rather than trade. It doesn’t look very sane.
(Dow chart)
Interest rates might be going up after all, so the Dow slumps, that makes sense. Then, whoosh, it rallies wildly. That makes sense to but only if you apply the opposite logic to the reason it slumped.
This action could have been caused by two parties. The equity fellows panic at the idea of their stocks fighting a high dollar and increased debt service. Down she goes. The huge international hot money players then show up and buy dollars in the form of equities to get the benefit of an appreciating dollar using the most liquid and convenient instrument available that isn’t a bond.
That see-saw was a 370 point round trip in about 2 hours.
To me it screams “market intervention,” but I always remind myself this simple answer is usually very wrong.
Conspiracy theories are wrong 99 times out of 100
I hope it is very wrong because if the Fed intervenes every time the market dips then ultimately the outcome will be a market malfunction of colossal proportions. Perhaps it is naive to believe in the idea that you can’t fix the market. Having seen interest rates leveled to zero, perhaps markets can be rigged and rigged for good.
Let us hope this isn’t the case because that is the doorway to many terrors.
So what is going on here?
Its perhaps better not to look at the Dow. The statement is really about interest rates first, hence bonds, then the Dollar. The junior markets are further down the chain of causality.
Interest rates up means the dollar is going up because the Europe and Japan is still in QE mode so the Euro and Yen interest rates are staying at zippo while the dollar’s rate are on the rise. If you are big money, you have to head to the dollar.
While the equity markets rallied, Gold dumped and the Euro, the other massive haven currency caved, so did the Yen.
(Gold Chart)
From this you can think good news is good news, for equities because an equity is a pile of dollars back by a global business.
In the last several years ‘good news has been bad news,” so this might be a good change, but the market keeps begging the question: “what went right?” It could be that good news, is good news today but bad news tomorrow, because a strong dollar is not going to be helpful for the US recovery.
However with central banks using QE and interest rates like the hammer of Thor to smash their way towards their economic goals, anything is possible.
(Euro chart)
I’m now tempted to hold the opinion that no crash will (be allowed to) happen out of the blue. There will be corrections but no sudden 25% vertical drops, at least not in the foreseeable future.
The central banks are hopefully not directly intervening in equities but they still have plunges protected. That’s not to say we won’t get more bear market. It means we won’t have a 1987, 1997, 2002, 2008 style crash and panic. An old style crash could happen but it will take a black swan event to get one underway. Everytime the process starts an invisible hand grabs the falling market by the rist like some cliché action hero
This is the third US auto-magical stock market levitation I’ve seen in a year and whatever causes it, does the trick of avoiding a market panic and crash.
If the market is not going to crash like back in the day, but instead, correct and rally every now and again, what investment strategy works?
Even if it’s a in a bear market, it means we should buy the dips and sell the rallies whether that’s the market as a whole of single stocks in particular. It means taking on more risk by concentrating portfolios and by focusing more on special situations by looking away from blue chips.
That’s what I’m going to be doing. But I will still be scanning the horizon for the exogenous hammer blow, because in the end, one always comes.