The Big Picture for the Week of July 1, 2012

Yesterday in the middle of the day I looked at a chart for the S&P 500 and noticed the following important formation as follows. Ok, a humor attempt as the market blew off some steam and rocketed higher. Based on what I read and my twitter feed I would say the actual trading seemed far more euphoric than the sentiment that exists but that is hard to say. Going by the book, the more skepticism that exists the better chance the market can still work higher and if participants are giddy then it would probably go right back to where it came from. We’ll know soon enough. There is nothing in the previous paragraph that you have not read before somewhere. A point made here repeatedly over the years is that although the details might change, markets tend to behave the same which is hopefully comforting and might make navigating a market cycle a little easier. There are aspects of market movements that are reasonably predictable. There are no absolutes and no guarantees but understanding normal market behavior might keep you away from the herd mentality. On an unrelated but positive note another firefighter and I performed CPR on a medical call yesterday and it...

The Big Picture for the Week of July 1, 2012

Yesterday in the middle of the day I looked at a chart for the S&P 500 and noticed the following important formation as follows. Ok, a humor attempt as the market blew off some steam and rocketed higher. Based on what I read and my twitter feed I would say the actual trading seemed far more euphoric than the sentiment that exists but that is hard to say. Going by the book, the more skepticism that exists the better chance the market can still work higher and if participants are giddy then it would probably go right back to where it came from. We’ll know soon enough. There is nothing in the previous paragraph that you have not read before somewhere. A point made here repeatedly over the years is that although the details might change, markets tend to behave the same which is hopefully comforting and might make navigating a market cycle a little easier. There are aspects of market movements that are reasonably predictable. There are no absolutes and no guarantees but understanding normal market behavior might keep you away from the herd mentality. On an unrelated but positive note another firefighter and I performed CPR on a medical call yesterday and it...

Fallacy of Explanation

Yesterday was a very interesting day for markets. US markets started noticeably lower then went quite a bit lower from there before retracing a meaningful chunk of the decline to close down 21 basis points. Nassim Taleb has talked/written about people’s need for market moves to be explainable. He says that everyday they tell you the market was up such and such or down such and such because of this or that but that it is all noise. The market, he would have you believe, does what it does…period. I agree only to a point. Sometimes the action in the market on a given day can be easily attributed to news of the day. That day in October 1997 when circuit breakers closed the US market early because of a large decline was clearly attributable to the Asian Contagion. Likewise in the first couple of days after September 11 when the market declined was pretty easy to understand. But not every day’s trading can attributed to news. Yesterday’s step off was blamed on the Supreme Court ruling on Obamacare. Then the snapback was attributed to positive rumblings out of Europe. Whether that description is noise or a real explanation is up to each investor to decide for themselves. Related to noise is a comment left by a reader asking bout our recent trade where we increased exposure to the healthcare sector shortly before yestrerday’s ruling. My thought before, and this is still the case now, was that for most stocks in the sector this is more noise than anything else. It has been reasonably telegraphed that the stocks most...

Fallacy of Explanation

Yesterday was a very interesting day for markets. US markets started noticeably lower then went quite a bit lower from there before retracing a meaningful chunk of the decline to close down 21 basis points. Nassim Taleb has talked/written about people’s need for market moves to be explainable. He says that everyday they tell you the market was up such and such or down such and such because of this or that but that it is all noise. The market, he would have you believe, does what it does…period. I agree only to a point. Sometimes the action in the market on a given day can be easily attributed to news of the day. That day in October 1997 when circuit breakers closed the US market early because of a large decline was clearly attributable to the Asian Contagion. Likewise in the first couple of days after September 11 when the market declined was pretty easy to understand. But not every day’s trading can attributed to news. Yesterday’s step off was blamed on the Supreme Court ruling on Obamacare. Then the snapback was attributed to positive rumblings out of Europe. Whether that description is noise or a real explanation is up to each investor to decide for themselves. Related to noise is a comment left by a reader asking bout our recent trade where we increased exposure to the healthcare sector shortly before yestrerday’s ruling. My thought before, and this is still the case now, was that for most stocks in the sector this is more noise than anything else. It has been reasonably telegraphed that the stocks most...

LIBOR Scandal

A reader left a comment yesterday noting the LIBOR scandal and he said “it never ends.” Yes, this is what I have been saying for years now in terms of other shoes will continue to drop. This will continue to play out, by this I mean bad news for the largest US and European banks. The totality of the banking crisis is still years from being solved. Short post, big testing day for...