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Everywhere we look people are playing the market game which I refer to as trying to pin the event tail on the market donkey – meaning they are trying to rationalise market action using funnymentals (sic). The problem is the market is not governed by these but is instead a product of mass human psychology and, more importantly, market positions.
For example if everyone who wants stocks is stuffed to the gills with them then the market will go down because all the potential is to sell. It is a conundrum but every time someone buys the market the price may increase but the market is weaker as that is one less purchase that can happen again and one more stock holding that can be sold. It may seem counter intuitive but it is entirely logical. Of course news items affect the market and so it seems to be all about events but these are not the controlling influences as is often demonstrated when markets fall on “good” news and rally on “bad.” Often we see major peaks come out of a clear blue sky or on such days as New Year’s Eve (think FTSE 1999 and Nikkei Dow 1989 – neither of these peaks has ever been equalled!) when the feel-good factor is at a maximise leaving the funnymentalists scratching their heads in some confusion but there is always an event tail lying around somewhere they can pin on the donkey. Of course they do this blindfold which is an apt description of their blinkered view of markets.
The game can be fun but it is for the reasons above I prefer to be a technoid!
Whether we have actually seen key peaks remains uncertain right now but I’m glad our longer-term shorts are in place and I still plan to add to these. In fact I would be happier if all this was happening against a backdrop of clear blue skys rather than the general economic chaos that surrounds us as we head towards the end of 2012.
We also have options expiry tomorrow and this can be pivotal.
The US DOW
The Dow closed yesterday at 12570 down 185 points with the spread betters now quoting it at 12600 (+30). Another slide on the Dow and this again looks more like a third wave – see chart – meaning it could continue after expiry, somewhat worrying as moves after expiry can be very sharp. We remain 50% short of the NASDAQ via the ETF Proshares Trust Ultrashort QQQ
