- It’s the fact that the U.S. stock market, which is viewed as perhaps the most liquid equity market on the planet, can be pushed around by 0.5% or so at the drop of a hat that bothers me.
Sometimes, I like to open with a thought provoking quote. The one above is from David Moenning, a financial writer I follow because he is realistic, humble, and generally right-on in his thinking. I will get to the intent behind his comment in a moment, but before that, let me deal with a market that seems to be heating up again …
It’s Monday. It is hotter than, well, think of the hottest place you know in the western part of the US, other than Death Valley or Phoenix Az. Yesterday, the digital sign at the local bank reported the temperature in big orange numbers as 114 degrees here in Ogden Utah. Now, in my book that is hot. Although, I must admit, I saw those numbers while driving by in an air-conditioned car, which makes that 114 temperature a whole lot more bearable.
The market opening up today strongly in the green makes recent market behavior much more bearable as well. My trades are now doing what I thought they would do when I jumped into them a little bit ago. If the market can achieve a level of stability and return to levels of two weeks ago, the temperature just might rise to record breaking levels, again and that will spur a buying panic, as QE tapering and China’s liquidity “issues” are now passé.
- China’s chief banking regulator said on Saturday that liquidity in China’s banking system is sufficient and pledged to control risks from local government debt, real estate and shadow banking. Despite a cash squeeze that sent money-market interest rates soaring over the last two weeks, banks have more than enough reserves to meet settlement needs, Shang Fulin, chairman of the Chinese Banking Regulatory Commission (CBRC), said at a financial forum on Saturday.
Of course, one expects any government to spin the positive, but in this case, it is true, in the sense that if the banks did not have enough reserves, Big Daddy government does. Put that and the QE tapering nonsense away, though, and the market only has fundamentals to look at, and in China, as in the US, the fundamentals are not over the top, but they are okay, so the market should follow suit and be okay.
If you watched Friday’s close, though, you might not think the market is tending toward okay. Sometimes, that kind of movement is scary because it points to computerized trading, trading that is so fast it makes your head spin. This brings me back to David Moenning’s earlier quote about the forces that can move the market with such force so quickly. Since he did such a fine job with his earlier quote, here is an explanation of the Friday’s move that makes sense to me.
- In all honesty, it is difficult to make heads or tails of the “action” in the market on a day like Friday. Stocks opened lower then rebounded quickly and spent the vast majority of the day around the breakeven mark. But then, with 21 minutes left in the day, the month, and the second quarter, the algos switched into high gear. During the last 21 minutes of Friday’s session, the S&P dove 9 points (or nearly 0.60%), with six of the points coming in the last 5 minutes of the day. And since there wasn’t a headline to be found to justify the move, we have to assume that the dive was tied to end of month/quarter rebalancing shenanigans
One force that can move the market quickly is the rebalancing act the big boys and girls do at quarter’s end. Sometimes, the movement of money is to the down side, as it was on Friday and sometimes it is to the upside, as it has been in the past. The point is that the end of the quarter is a time to keep your trades to a minimum, unless you have a firm sense of impending direction. These days, that is a hard thing to acquire, but as the summer rolls on and the heat continues, I suspect the overall market temperature will rise and rise some more, once again breaking records along the way.
Trade in the day; Invest in your life …
