“The sky is falling. The sky is falling,” cries Chicken Little, and everyone goes running because, after all, Chicken Little is a renowned expert on … on what, exactly? So goes the crying of those who are telling us this is the resumption of the bear rally that was so rudely interrupted in March of last year. Lord, help us all …
One of the most frustrating things about working in the world of trading is having to listen to the “renowned” experts, especially in these times of economic, fiscal, political, and geo-political uncertainty. So, as much as I am able, I avoid the arrogant voices of prediction, and I formulate my own opinion about what is happening in the markets.
Yes, uncertainty reigns in the areas I mentioned, but what else is new, really? The sky has been falling all of my adult life, and, as history shows us, it has been falling ever since we started recording our history. The interesting thing is that sometimes large bits and pieces of the sky do fall, as we saw in 2008. Historically, massive hunks fall, such as the Great Depression. But, for the most part, the sky never actually falls; it simply feels that way. That past two weeks have made me feel a little like our roof is collapsing, which begs the question is it?
Anyone who has been at this game for more than awhile understands that the prime driver of market movement is economic. Growth and profit are the catalyst for market movement, unless, of course, politicians open their mouths to say something stupid, or a rumor floats, or bad news pops up, or something such catastrophic occurs that, well, breaks up the sky causing bits and pieces to come crashing down.
The reality today is that we do have some big issues to grapple with which creates uncertainty, and when we have uncertainty, the big-money players pull their cash and wait. This sets the table for the traders, who, on limited volume, can move the markets pretty far, pretty quickly in either direction. News becomes the driving factor in these uncertain times, and we have plenty of that – Greece’s debt, China’s recalibration, financial reform, mediocre employment numbers, and more.
So how does one trade this market? Carefully, I suspect, all the while keeping one eye toward foreign markets. What will the European Central Bank (ECB) do regarding the debt of Greece, Spain, Portugal and other economically challenged countries? What will the EU do to protect the euro? How far will China go to slow down its fast moving economy? Will the emerging economies of Eastern Europe and India pick up the slack produced from the halting economic recovery of the EU and the U.S.?
The other eye should watch our Fed and its policies and forget about the political wrangling in Washington. Keep that eye on corporate earnings, manufacturing data, the employment numbers, and consumer spending. Sneak a frequent peek at the foreclosure rate, commercial real estate debt, and the commercial-paper market.
Who cares what the “experts” think anyway? The reality is that just about anything can happen and frequently does – prediction is just about useless. The good news is that if you are a trader (as opposed to an investor), these are your days. Volatility reigns. Big spikes and long dips are manna from heaven. Short selling, options, and commodities all provide opportunities to make a quick, turn-around buck. The dollar trade appears as if it will hold on for a bit longer. Who knows about equities? Even though economic factors are the primary market drivers, it would seem that in this, a trader’s market, economic factors have given way to those exceptions – political stupid talk, news, and rumor all wafting about in the volatile air, and who is to say if something catastrophic awaits us in the darkness out there.
So is the sky falling? Certainly the answer depends on who you ask, but, in my opinion, the little chunks dropping all around us are less about the sky falling and more about how we perceive what is going on in the world, in our country, and in our own minds.
