this market makes no sense
So unemployment ends up being worse than expected and as of 7:19 AM PST we're trading at.....+176?
http://biz.yahoo.com/ap/081107/economy.html?.v=6
Yeah, that seems like a reason for the market to surge.
The nation's unemployment rate bolted to a 14-year high of 6.5 percent in October as another 240,000 jobs were cut, stark proof the economy is almost certainly in a recession.
The new snapshot, released Friday by the Labor Department, showed the crucial jobs market deteriorating at an alarmingly rapid pace.
http://biz.yahoo.com/ap/081107/economy.html?.v=6
Yeah, that seems like a reason for the market to surge.
Comments
In other words, the market makes perfect sense. Everyone is running around like a chicken with their heads cut off, and in a market like that you'd expect news and performance to be completely unrelated. Putting cash into most stocks today is far closer to putting it on Red 29 than most pundits are ready to admit.
While that analogy is usually apt, I think today's environment might more closely be compared to running back and forth in front of a dart board, blindfolded.
I honestly believe people are buying because they are frightened about missing out on a huge rally. Then, the bad news keeps coming in and they are frightened about losing more money so they sell. Perhaps there is manipulation, but I think that's a minor factor.
I also think the automatic trading (computers deciding what to do) is playing a part. Some common algorithm probably says to buy on drops just inside some X-day moving average. So you've got perhaps a band in which the algorithms think stocks will move, these trades might be contrarian often enough to push the market a little, and then anxious investors go "bad news but the market is up...maybe this is the rally" and they buy in.
We won't know what to think of this market until it settles down for a couple weeks. I have no idea when that will happen though.
I agree with rcc that program trading is a factor. It was a big factor in the 1987 crash. I believe that suckers' rallies are promoted by the big shots, so they can sell into them.
My opinion on the market volatility right now is this. People who know what they're doing (mutual fund managers, analysts, etc) are buying like crazy because all stocks are so cheap right now and they don't want to miss the bottom. (Keep in mind that it's large institutions with millions of dollars being thrown around that affect market prices, not individuals doing they're own trading). On the other hand, you have the common people hearing about the financial institutions going under, so they freak out and sell they're shares of the mutual fund they own. So the same mutual fund managers that are trying to buy like crazy end up having to sell to free up cash so they're clients can take their money out. Some days, people don't freak out so much and the market rallies. Other days, mutual fund managers are strapped for cash and have to sell like crazy. I think it's random chance which one it will be each day at this point.
The headline news "explanation" for the market move is almost never particularly useful, however.
It is somewhat useful to keep in mind that the market supposedly is looking 3-6 months in the future and that today's headlines are supposedly 'baked into' the price already. I don't know how true that is, but it its a good mantra to avoid focusing on the headlines of the day.
Its also useful to watch oversold/overbought indicators and technical indicators, which can at least describe what just happened, if not predict the future.
For example, right now we appear to be in a trading range between about 8000 and 9500 on the DJIA. The action for the past couple of days has flailed around the 20-DMA a little bit, so we should in the next day or two either get a rally to establish an uptrend or fall again back down to 8000.
The swings in the market are also getting a little less violent, and its taking longer to go between 8000 and 9500 which to me indicates that the market is getting closer to having "digested" that recent plunge, and we should be paying attention to look for trend changes (to the current sideways trend).
I still don't know why we haven't seen a decent short-covering rally..... With the market going sideways, though, it is starting to pull back from the oversold conditions without significantly rallying, so we may be in a continuation pattern and may break down again... dow 7000?
Bear Capitulation.
I stopped investing after every move I made got the wind sucked out of it by the chronic 20% swings in the financials (40% in the ultras) in less than an hour thanks to the Fannie/Freddie baliout, short bans, and other assorted interventions. I know numerous hedge funds collapsed as well due to these unplayable swings. Unless you are an insider, you have to stay out or get destroyed.
This is when the true bottom falls out, because there is no one hedging the market. Federal intervention in the markets has become so frequent that there are no shorts left of any consequence. This means that the current administration can no longer transfer wealth from the little guy to the insiders. This is why Goldman Sachs, Meryl, etc all turned from IB to bank holders, so they can get infusions directly from the taxpayer.
The only question is, will this continue under Obama? Given the massive donations from the finance industry to Obama and his Chief of Staff, I'm inclined to expect the worst, but given Obama's background, I hope for the best.
It did drop below 8k today briefly (I had to literally use all my willpower to stop myself from buying anything; I'm trying to keep a disciplined dollar averaging strategy as the market collapses). Does the market ever really correlate with the news? If it did, the DOW would be at -1K.
No, that is real news. The highs/lows don't matter right now. What matters is an 800 pt swing in one day. It was starting to look a little like volatility was down. Sure, we had 100-200 pt drops the last few days, but little volatility. This just confirms the market is still completely unsettled.
I do have to add, I usually scoff at conspiracy theories like a plunge protection team...color me interested at this point. < 8000 pts has been tested about 5 times in the last month and it was followed by record setting rallies each time. It's probably just the fabled dead-cat bear rally, but it's still peculiar.
I suspect there are a lot of investors who have triggered buys. They see 8000 (or some other arbitrary number) and start shopping.
I agree, and I think what you're saying is the truth. I was just admitting I can be swayed a little by conspiracy theories, at least briefly and at an emotional level.
I do think once we truly break 8,000...look out below.
I caught the first episode of huckabee's show on fox and he was giving air to someone who thought that terrorists were taking down the markets and selling it short at the end of every session.
There's really no conspiracy, though, its just forced selling and liquidation to meet redemptions and build cash positions -- in an atmosphere where the markets are expecting more earnings misses and is digesting more and more bad news.
GOOG and AMZN still haven't been taken down to levels that i think they should be at. They are fundamentally still an advertiser and a retailer, the growth of the internet helps them out, but doesn't isolate or recession-proof them.
If the lame-duck session fails to do anything about the automakers and GM fails that'll be particularly nasty for the broader economy. Retail already looks bad -- image what it'll look like after 2-to-5 million jobs are lost as the economy digests all the GM job losses and the losses from all its suppliers (plus additional CDS shocks).
Letting Lehman fail hard was not a particularly good idea when looked at in the rear view window -- I doubt that letting GM fail hard is going to look good in the future either.
This has nothing to do with anything except the irrational, yet fairly predictable, pattern of the last few weeks.
Bear markets are always the most volatile market periods, and I think this is going to be one of the most volatile markets ever.
Well, I had the pattern correct, just not the scale.
Tomorrow's prediction: Open with a small buy to ~8600, steady decline to a close around 8200.
Just curious why you think were gonna go this low? We experienced a drop of 80% during the great depression, and your 1-2k predictions would be a 86-93% drop. I thought I was pessimistic thinking we may get to 4-6K at some point.