MARKET VOLATILITY ON STEROIDS
August 09, 2011
Monday: the DJIA was down over 635 points. Tuesday: we swung around by 600 points intraday to close 430 points higher. This is the stuff that drives investors like (“Former”) Chief Inspector Dreyfus nuts.
There was much consternation following the Fed’s decision regarding interest rates. The markets liked the commitment to extend current interest rates for 2 more years but were dismayed by 3 dissenters. This took the indexes sharply lower after being up 200 points early. Then, from the abyss, buy programs were launched. And, if ever there was the hand of the PPT (Plunge Protection Team) involved, today would’ve been the day.
After all this is the most activist, market oriented and interventionist Fed and Treasury the country has ever seen. So let’s not kid each other or dismiss this possibility.
Who had the “cash” to buy today? It certainly wasn’t mutual funds which had ultra-low levels of cash needed to meet massive redemption requests. Hedge funds? This is a possibility but previous rock stars like David Tepper told everyone who could hear to “sell everything”. Previous hedge fund king John Paulson’s large fund has been liquidating underperformers throughout this period. Overseas investors remain a distinct possibility. Hell, one guy wrote me yesterday saying he was so upset he sold his “cash”! LOL!
If it wasn’t the PPT then it was the hated HFTs. The can launch buy programs in a New York minute. And, they could care less about the news or anything else for that matter. So bulls and the financial media hate them when markets fall but are mute when they take prices higher. We’re always looking for scapegoats when things go badly, right S&P?
Gold prices continued higher but closed off their highs as stocks rallied. Bonds also saw some profit-taking but were higher overall and commodity prices rallied from losses to close flat. The dollar was weaker with Swiss Franc hitting another record high.
Volume was incredibly high and breadth per the WSJ achieved a 90/10 day reversing short-term oversold conditions and Monday’s 10/90 experience.
Short squeeze engineered from the Fed or Treasury will be much asked about going forward. It used to be such talk was considered whacko but with this current crowd in control of things nothing would surprise me. And, with conditions historically much oversold what better time to launch buy programs whether by them or others. Who else has that kind of fire power? Clearly overseas investors now do and they’ve become much more sophisticated.
Some will argue stocks were cheap with low PEs and dividends equal to Treasury bonds. But earnings driving these multiples are now “old news” when economic conditions were better. Now with economic data quite poor this thinking could be challenged.
In the end it’s important to keep an open mind and as a technician that’s our primary role even if we’re uncomfortable with the news environment.
Bulls or TPTB have played their hand; now let’s see what they can do with it.
Some will argue stocks were cheap with low PEs and dividends equal to Treasury bonds. But earnings driving these multiples are now “old news” when economic conditions were better. Now with economic data quite poor this thinking could be challenged.
In the end it’s important to keep an open mind and as a technician that’s our primary role even if we’re uncomfortable with the news environment.
Bulls or TPTB have played their hand; now let’s see what they can do with it.
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