So, the seller came in droves yesterday at the market close. What does one gather from that? The market seemed rather stable and then …
Perhaps one headline from this morning speaks to some of the selling that went on yesterday afternoon.
Political Sideshow Could Preoccupy US Markets
Yes, I suspect that is the reason for yesterday’s the selloff, but I also suspect, the selloff is nothing to be overly concerned about at this time. As I wrote back at the end of August when the market looked pretty awful and in the first week of September when it looked much better, expect an up and down flow until the US political theatrics are over. I also wrote just a few days ago that the sellers would hold sway for a bit because the buyers are waiting in the wings for the market to give better pricing.
Everyone knows Jim Cramer, right? I used to follow him early on in my market work, until he gave a bum lead on a financial trade back in 2008. He missed the mark quite widely, as did so many others back then, but that is not the point, exactly. My point is that I was looking for someone else to give me my trades and that is a mistake, if you want to play the market well. It is a mistake because most of these guys and gals out there are doing what you can do – researching and concluding.
Back to Jim Cramer … Now, I find the gentleman quite amusing. He has his TV shtick, that makes him popular, and even though I don’t follow him, I do, occasionally, check in on him, as I did this morning. He has a similar take to my own on the market.
- “Given the shutdown event is five sessions away, I have to think something is going on,” Cramer said, “otherwise we’d be a lot lower.”
An astute thought delivered with a sense of curiosity, but what is going on is fairly obvious. In fact, I am not sure why he seemed curious, as he lays out in his writing 12 reasons why the market is up. Here are three of his 12 reasons why the market is not tanking.
- Transports are strong. “When transports rally, I have to believe that commerce is picking up.”
- Auto sales appear strong. “Carmax, the gigantic used car seller reported outstanding sales and earnings today. That’s a terrific sign. The auto market has been a huge engine of the economy.
- Rates are down. “We got a one-two positive punch from the Fed.” Cramer said. “No Larry Summers who was widely perceived as a hawk and then the decision not to taper … the market may be thinking that lower mortgage rates will reignite home sales.”
Now, you know I believe economic fundamentals ultimately drive the market, so how about those as a reason the market is not tanking from the asinine politics in Washington D.C. Just to be certain Cramer is onto something, here are some stats to consider.
- Orders for long-lasting U.S. manufactured goods edged higher in August and gave a signal that the factory sector gained a step midway through the third quarter. The report showed that shipments of non-military capital goods other than aircraft grew 1.3 percent during the month, snapping two straight months of declines.
- Demand for new cars drove the overall gain in new orders of durable goods, which include everything from toasters to tanks.
- The Commerce Department reported New Home Sales in August rose 1.2% on a monthly basis to an annualized rate of 421K. This was above the consensus expectation for a rate of 416K. On a year-over-year basis, the annualized rate of sales is up +12.9%
It appears the happy and crazy man is onto something. Perhaps, and I say this carefully, the market thinks that the politics in Washington D.C. is theatrical, and that all the nonsense will end with a whimper, not a bang. Perhaps, the market thinks that even if the government shuts down, it will have to come back up quickly. Perhaps, the market thinks that economic growth tops nonsense and that whatever happens in the next few weeks will matter less as the world continues to improve. Perhaps, Cramer is onto something. Here are two more of his 12 reasons that make me think so.
- Foreign markets are improving. “China appears strong, there’s a turnaround in Europe and the ECB is saying they will stay accommodative because the recovery is so fragile.”
- Hedge funds are very negative. “So many funds are betting that a shutdown will be terrible that they keep shorting the market endlessly. Perhaps the short side has become too crowded?”
The former speaks to global economic growth and market momentum and the latter speaks only to market momentum. You see, most hedge funds care little about economic fundamentals. They play on fear and greed, and the idea that the US government might shut down is fearful. Now, the upside to this is, as Cramer suggests, that once the fear subsides, look for the short squeeze in the market, as hedge funds liquidate their short positions and then play the greed side.
Go with Cramer on this one – don’t let the political sideshow fool you.
Trade in the day; Invest in your life …
