Tuesday, October 5, 2010

Go Figure

I usually can figure out why the market makes its daily moves. Today, the Bank of Japan was at it again as they dropped rates from just about zero to absolute zero but this time the yen went up. The dollar tanked. Commodities zoomed. This one, I do not get.

The 2-year Treasury rate stayed at its record low. Gold just about hit my 1350 target (see Facebook side bar --> for more).

For what? Japan said it was going to work on its economy? After 21 years, NOW they mean it?

Dear readers - you tell me what is happening. Technically, we have no choice but to see a price breakout across the board. True, volume was its usual stinky self but I am out of objective technical arguments.Something is wrong and I just cannot figure it out.

Let's crank up the comments machine. I know how many visits this blog gets so let's share the mental wealth.

14 comments:

Paul O'Cuana said...

This is a very confusing time because the last time we had a real threat of deflation was over 70 years ago.
For generations the words "Don't Fight The Fed" made sense. So, when the Fed says it has plans to stimulate the economy the stock market is trained to respond bullishly.
The bond market sees something else. Bond bulls see QE2 as confirmation that QE1 didn't work. After nearly a Trillion of stimulus, in addition to the Feds action, real final sales are up less than 1%. The political will for more stimulus is gone.
If no one wants to buy a house when mortgages are at 4%, will bringing rates down to 3% do any good? Perhaps at the margin but this economy needs a lot more than that.

omer said...

Is this realy that hard? Fed is using POMO buying stocks, ETFs probably commodities too via its members. -the Banks are members of the Fed, remember- at infliction points, calculatedly they are drawing in the shorts, and having them cover.
And what is being said about bonds seeing this/that, why such guessing?
Fed already shouts it will buy treasuries, so their prices will go up, from these levels, easy money..Is there a problem with my logic?
What is going on is very easy too see. Question is what will make it stop. Will they continue till 1200? Why not to 1300? Higher asset prices, and inflation is better, they say that too- What do you think?

Amalan said...

One of the mistakes people make is to try to make sense of daily readings on funnymentals. Absolutely no one knows why a market goes up or down on a daily basis, and yet we follow the "news" - all we hear is some trader(s) telling us why the market is up or down for the day, and we'll faithfully repeat it or internalize it because on the days where the news matches the market move, it makes us feel good to "know" the reason for the move. Did those traders actually buy/sell the majority of shares for that day? Hardly.

No worries - we are range bound until the correction ends. And it will end sometime this fall.

joed said...

I also am a little confused in a broad sense but am looking at an opp to possibly short KC,SB and CT very soon and this could line up nicely with DX hitting it short term obj. and then bouncing. Unless we see a new leg up in metals I think we may have just about hit our objectives. BTY, COT report last Friday suggest longs for the above mentioned softs are in the hands of the small investor.

steven said...

Don't expect the market to go down in Nov and Dec. We are on a gravy train until next spring. Might as well join. Why? I don't understand, either. I am as bearish as anyone on the economy. But, follow the technicals.

Quick Takes Pro said...

Steven,
Please explain the gravy train to next spring comment?

Quick Takes Pro said...

Omer,
Is the Fed's rhetoric any different now than its been in the last two years?

bill9a said...

Just may be that we're in an old fashioned seasonal pattern that will feed on itself. For instance, old rules are the new rules, sell in May - range bound summer so the financial columnists can have time to fire up their Ferraris in the Hamptons, get back into the market in early fall, Late October usually sends markets higher as do the months after mid-term elections. Then, you get IRA money and bonuses ready to feed the new year. At some point, joe six pack (that's me:) starts feeling like he should get back in before the train gets to much further away.

omer said...

Yes it seems to me so. What do u think: Bad econ data, and talk of double dip increased from May on. And FEd officials talk of Qe2, especially from August. Greenspan I believe said something like best way to keep consumer spending up is keeping the stock market up. Then since Fed minutes coming out in September, it seems every other day a Fed official talks about extra stimulus need-DESPITE occasional good data, like ISM yesterday. And first time Bernanke said openly targeting higher inflation, to be a policy goal and desirable:).
Also during the summer this policies, and maybe POMO manipulations, held the market at critical levels, everytime it broke 1070 with force, it crashed a wall at 1035-45 area. I believe from the price action, significant player(s) held the market at that level. Recently looked at Apple chart, at very high levels rollovers of short term averages, then again crossovers, like little 'friendly' waves), breaking at the beach of 240, does it look like a normal chart to u? Must it not normally be uptrends and downtrends, seemling unpredictable, without bouncing at certain levels?
So FED successfully, in my view, ingrained the view that market will not fall below 1040.10000 on DJI If something does not go down, it is worth even if u don't believe, to take a chance up, if u believed , and held stocks already u dont sell, especially at a loss.
And people want to believe interestingly that prices will only go up, think of internet stocks, and housing. I am from Turkey we have a folk character by the name of Nasreddin Hodja, he has a super little story about this general human thinking, at this link in English: http://www.readliterature.com/h010412.htm

Now I think to myself how did I miss this? As u see I have followed the market very closely including this blog everyday. And actually I began to be interested in Technicals from ur post about golden cross in Jan 2009, then I went in based also on that in May:) And this year basically this talk of Death cross after flash crash made me stay out, plus lose money on the short side.
All of the talk of death crosses, head and shoulder patterns Hindenburg omens etc, blurred me and people like me, I think. We need to think as simple as possible define a narrow breakout criteria, and follow it.
I would like to get ur view: Mine is now crossover of 5-20 days, not long term 50-200, it is irrelevant since my investment/trading horizon is daily. When the death cross happened in June/July actually 5-20 crosses was signaling around 1070s, with little stop losses,it gave 2-3 times during summer this is for SP. And most importantly to do this every time without thinking about anything else. I think of this as getting a ticket for a concert. U have to pay for the ticket in advance -the potential 2-3 percent loss if breakout turns out false- if it is genuine, u enjoy the show. If it is fake, u leave, the ticket price is wasted, just we need to buy evey time, season tickets:)
Patterns like HS,or anything involving a long time horizon, more subjective, conditional judgement-like if this happens, this target is inplay, etc..- are harder to predict, and very dangerous. Danger is mostly being committed to one side in one's mind. Then u cant reverse so easily. And look 4 weeks later like I do now, how this did happen? Defining moves in this market have been 2 percent daily. With such a model we should have gone long at 1100, it seems late but think together with going short with the dollar, -which is essentially the same trade-, or buying intl ETFs, return would be 10-20 percent, (if Emerging markets). or from Gold (signaled at 1200)
What do u think about such a short term system Michael? I really believe all other information is useless, even harmful now, would like to get ur insight.

omer said...

Yes it seems to me so. What do u think: Bad econ data, and talk of double dip increased from May on. And FEd officials talk of Qe2, especially from August. Greenspan I believe said something like best way to keep consumer spending up is keeping the stock market up. Then since Fed minutes coming out in September, it seems every other day a Fed official talks about extra stimulus need-DESPITE occasional good data, like ISM yesterday. And first time Bernanke said openly targeting higher inflation, to be a policy goal and desirable:).
Also during the summer this policies, and maybe POMO manipulations, held the market at critical levels, everytime it broke 1070 with force, it crashed a wall at 1035-45 area. I believe from the price action, significant player(s) held the market at that level. Recently looked at Apple chart, at very high levels rollovers of short term averages, then again crossovers, like little 'friendly' waves), breaking at the beach of 240, does it look like a normal chart to u? Must it not normally be uptrends and downtrends, seemling unpredictable, without bouncing at certain levels?
So FED successfully, in my view, ingrained the view that market will not fall below 1040.10000 on DJI If something does not go down, it is worth even if u don't believe, to take a chance up, if u believed , and held stocks already u dont sell, especially at a loss.
And people want to believe interestingly that prices will only go up, think of internet stocks, and housing. I am from Turkey we have a folk character by the name of Nasreddin Hodja, he has a super little story about this general human thinking, at this link in English: http://www.readliterature.com/h010412.htm

TradingCents said...

I'm not an economist, but could it have something to do with the Bank of Japan considering purchasing exchange-traded funds and Japan real estate investment trusts? Traders may believe that the Fed will also move in that direction (e.g. buying stocks and REITS) as part of QE2 (see http://www.cnbc.com/id/39521561). That may help to explain the jump in markets, drop in the U.S. dollar, and the jump in gold and silver. These all relate to devaluation of the dollar.

But what about the 2-year Treasury rate? Maybe a result of continued expectations of low inflation over the term of the debt. This one relates to expectations of lackluster economic performance over the next couple of years.

John said...

The market is going up slowly and steadily despite overall gloomy near term outlook. Perhaps inertia has set in;people still contribute to 401k to get even from last few years, and my generation has a hard time placing money into near-zero yielding safer havens. Volume is low, so it doesn't take much to move the market either way.If fear returns , watch out below. If jubilance returns, well, won't that be a happy day!

Ron Sen, MD, FCCP said...

http://ronsen.blogspot.com/2010/10/conors-new-macro-thesis-rethinking.html

steven said...

Michael, I say that the gravy train will last until spring based upon seasonality trends. Nothing in my chrystal ball that is different than yours. I don't like it, I don't understand it, but I had to switch teams (go long).