Now that the smoke has cleared after Chairman Bernanke fired the bazooka yesterday, the effects on the markets are dollar down, copper up, commodities up, gold up, equities up, the standard quantitative easing directional move. The euro is up moving with equities as usual. The Fed changed its stance from maintaining low rates into mid 2013 to now extending the easy money policy into late 2014. In addition, Bernanke commented that he remains open to QE3 (more bond purchases are on the table). The equities markets are rocking to the news but as things settle down traders must wonder why the Fed extended the time target. Of course because the Fed sees a weak economy, probably far weaker than any of us realize. Bernanke is walking down the road of Japan, a road he swore he would never travel. How many years, or decades, will be lost for America?
The ECB rate decision is coming in early February, days away, and with Europe falling deeper into recession, rate cuts have to be on tap, so the enthusiasm with the euro versus the dollar move should adjust backwards as the days play out. The recent ECB LTRO program, and now the Fed, are performing quantitative easing measures before the equities and commodities markets even pull back, as typically would be the case. Again, this provides a nagging background thought that the global equities markets may be in a lot worse shape than anyone realizes. But, for now, the party lives on, so pour another drink.
The Italy bond auctions went fine this morning. The Greece dilemma is supposed to be resolved by tomorrow, but that promise is repeated too many times already. The two countries to watch are Portugal and Hungary. Watch the Portugal 10-year yield to see if it explodes up and over 15% in the coming days. The higher Portugal and Hungary bond yields means it is more expensive for these countries to borrow money from investors. The yield reflects inflation expectations and the likelihood that the debt will be repaid. Hungary 10’s were over 10% a couple weeks ago. Early next week Italy bond auctions occur with the 5’s and 10’s and the E.U. Summit will occur so the Euro situation is going to heat up quickly now thru the weekend.
The ECB meets in early February, a couple weeks away, where another rate decision is required. Europe is slipping deeper into recession so they need to cut rates, this will bring the euro lower again providing a balance against yesterday’s Fed easing. In other words, this euphoria over Chairman Bernanke’s easy money policies should be dampened as time moves along.
Earnings are reporting in line with estimates, estimates that were lowered during the worst pre-announcement season for stocks in the last several quarters. It’s easy to jump over a bar that is lowered to the floor. Note that many companies are having trouble meeting the top line revenue sales numbers so the concern is not so much earnings or margins but rather that global demand continues to trail off lower, except for iPhone’s of course. The Apple addicts are unstoppable with many of the new sales the result of existing customers ditching phones that are only a few months old in exchange for the new model. Now that is loyalty, and a more well-to-do consumer.
The Dow Industrials closed at 12757 yesterday. On 4/29/11, the Dow closed at the 2011 high at 12811. On 5/2/11, the intraday high for 2011 occurred at 12928. Thus, if the Dow closes only 54 points higher today the Dow will be at levels not seen since spring 2008, 3 ½ years ago. The Dow futures are currently up 64 points. This is occurring as the Dividend Stock Bubble continues to grow. The high yield plays such as T, XOM, MCD, IBM, etc…., are experiencing continual inflows and pumping as Joe Sucka gets caught up in the divvy talk, rushing into the divvy plays. Afterall, every bubble needs a bag holder. As all individual traders must decide, is it important for you to receive a 5% yield on a stock as you may watch that stock tumble 5%, 10%, or even 20% in value? The divvy bubble will receive much greater attention as the weeks ahead play out.
These currently deceiving markets require soul-searching by all market long participants. Ask yourself if you want to hold any long positions for an extended period of time. If the equities markets pull back strongly here, perhaps the current levels may not be seen for quite some time. The Fed’s quantitative easing measures provide the market junkies another fix which moves contrary to this idea. Perhaps the markets will find clarity in the coming days as Greece, Portugal, Hungary, the E.U. Summit and upcoming ECB rate cuts all hit the fan. With the uber bullishness in the markets now, and many traders unwilling to short, the Wall Street adage of ‘picking up nickels in front of a bulldozer’ comes to mind. Sure you may have a wee bit more upside but the market downside risks are far higher. Thus, search your soul today.
For now, Chairman Bernanke has beat the dollar with a baseball bat, thus, copper, commodities, gold, equities and the euro all move up as a jolly team. Watch the dollar today. The market bulls win as long as the dollar heads lower.
For the SPX today, starting at 1326, if 1328.30 is achieved (reference the SPX support and resistance levels posted previously), the bulls will party higher once again with a bullish acceleration. SPX 1329, 1331 and 1333 are all very strong resistance levels. The bears are simply trying to stop the upside momo and would be happy with a sideways move thru SPX 1309-1327 today. As presented last evening, watch the SPX:VIX ratio 68 level and after the close check the SPXA150R.
I echo Anonymous's Wednesday comments about the incredible educational value of this website. And I've always been fascinated by your comments about sharks and bears and bulls. Can you someday tell us a few more specifics about the kinds of people/traders/algorithms we're up against? Or recommend a good book about this world we willingly walk into everyday?
ReplyDeleteHello Weaver, that's an interesting comment, Keystone did not realize how much of a zoo it all is with bulls, bears, sharks, penguins, lemmings, pigs and so forth. Quite an animal menagerie. As time moves along there is lots to discuss, the daily trading dictates the topics since a comparison is always made to history. History may not repeat exactly, but it often rhymes. So we will simply have to explore trading ideas as situations surface.
ReplyDeleteKeeping with the animal theme, of course the bulls and bears are the most famous, the bulls obviously describing the long players and the bears describing the short players. Many new traders may not know the origins of these animal pairings. The thought behind the bulls and bears is that the bulls thrust with their horns driving upwards through their adversary (markets moving up) while the bear's weapon is their claws that hack and tear down through its adversary (markets moving down).
Pigs are notable, not only because of the PIIGS acronym (Portugal, Italy, Ireland, Greece, Spain), but also by representing greed in the market. Traders are proud of a bullish or bearish trade that is going their way so they figure just a little bit more and I will collect the profits, but, as Mr. Market always does, he spanks you hard taking those profits back then some before they can be booked. Traders must protect themselves from piggish greed. Take the small gains day after day and be content with average gains. Slow and steady wins the race.
Penguins and lemmings follow each other in groups representing the herd behavior of markets. The stock market exhibits herd behavior to a great extent. Traders convince each other on market direction and then pile in, one trader folllowing the other, building into a frenzy loaded on one side of the boat or the other, only to reverse direction and all run the other way. The contrarians, and shrewd traders, are the ones noting this herd behavior, and taking these turns ahead of time, avoiding the group think as much as possible.
Keystone is at a loss to recommend any books other than the ones shown on the sites since many trading books are written for traders that already understand what they are reading. In fact, this is one of the reasons behind this site, to make the information on trading much more accessible to the average Joe and Jane, and to present the concepts in an easy to understand format. Keystone tries to illustrate the nuts and bolts daily grind of trading.
Perhaps Keystone will finish his book as the year progresses and that will be made available on the sites. The markets will have to cooperate, however, since the market action is crazy and requires focused attention, from July thru now, with no sign of abating.
You should try to finish that book - what a great resource that would be. But, really, in this day and age, the website(s) are the key. And social media. And what about announcing Keybot's moves in real time via Twitter? If the investing world knew what kind of batting average the algorithm has, this would be a multi-million dollar firm. Maybe it already is. But I'm sure there's little time for marketing, and a need to stay close to the educational side of things. It'd be an interesting discussion in itself some day. (Think of all the "Joes" and "Janes" forking over millions on investing books and seminars and you-name-it, with little to show for it.)
ReplyDeleteDanke Weaver, social media is key but the older folks will never jump completely on that bandwagon. It is interesting to see that over Keystone's lifetime, in a few short decades, privacy was valued extremely high years ago, but now young people are content with displaying every detail about thier lives in cyber space, giving up their rights without even giving it a second thought.
ReplyDeleteKeybot's moves are announced on Twitter. Since 12/20/11, however, there is nothing to announce since Keybot has remained long since SPX 1240. It looks like we are close to a turn, however, and it may come sharp and quick. When the turns do occur, typically they are posted within an hours time on both the Keybot and Keystone sites and on Twitter, Facebook and other news outlets.
Offers are occurring for Keybot's algorithm but good ole Keystone is content with simply posting the results on the Internet for now. The web sites are growing exponentially in popularity currently so it is fun to see where that goes.
Pondering the philosophical side of things, how much money does any one person need? Keystone is content with his pile, taking it easy every day and watching the world go by, helping the regular Joe's and Jane's out there that have a desire to learn about stock trading, and the casino we call Wall Street. Money and profits are of no real concern to Keystone, you cannot take it with you. It doesn't take much money to lead a happy life, obviously, health, family and loyal friends are what makes our short time on earth worthwhile. Health and family are the wealth in life rather than fiat currency.
We will let Keybot ride this year and see how it goes. The near 4-year track record for Keybot the Quant is stellar so far and that is expected to continue. So, time will tell.
Your thoughts on life and money could have come from me. Please accept my contact information somehow, in case you ever need help expanding Keybot/Keystone.
ReplyDelete