Here is yet another take on the S&P’s breach of the 200DMA – the first time the two lines have crossed since Brexit – from Bloomberg markets commentator, Richard Breslow, who however takes on a contrarian, mocking approach to the sudden army of chart experts spawned over the past 24 hours, lamenting that “I’ve never seen more market commentaries that said something along the lines of, I don’t believe in technicals but if this line is broken it’s going to be huge. Or my favorite, I don’t usually believe in technicals, but…”
Which of course is even more insult and injury to all the fundamental, value investors out there, whose investing skills have resulted in precisely zero alpha over the past decade courtesy of such Chief Risk Officers as Central Banks.
Below is Breslow’s latest Traders’ Notes:
Equity Battles Made Most Choose Love Over War
The only thing more symptomatic of a bipolar condition than how the equity markets have been behaving is how it is viewed by traders. So it makes entire sense to me that I have gone from looking at asset-price movements and thinking these people are crazy, to “this just might make a great deal of sense.” The day after the latest stock kerfuffle, I’ve decided that the lessons learned may have been well worth the cost. In any case, that’s my story and I sort-of promise to stick with it.
It’s probably not a bad day for reflection as it otherwise will be spent, only somewhat productively, with everyone watching whether the S&P 500 can retake that now infamous 200-day moving average. Which is somewhat ironic and totally to be expected because I’ve never seen more market commentaries that said something along the lines of, I don’t believe in technicals but if this line is broken it’s going to be huge. Or my favorite, I don’t usually believe in technicals, but…
The most important takeaway is that it will require a much more serious bloody nose than we saw for share prices to necessarily represent a reflection on the real economy. I’ve never seen equities do what they did with every other market in the world basically ignoring the move. Good on them.
It was a holiday market with subpar participation and the U.S. market was expected to provide the liquidity for the whole of the developed world. By the time yesterday’s move got underway when the cash market opened, there was really only one major market open. Who could resist running the stops. Especially when handed a free pass via boorish tweets and human error by corporate giants.
This version of the trickle- down effect led to a deluge that could very well turn out to have been a passing squall. Looking at currencies and bond price action, let alone the dismal failure of the VIX when it nosed above 25, certainly made the choice of the traders in those markets clear. Half the traders claimed this was the end of the bull market. The other half were trying to figure out when to buy. It’s hard to put too much faith in the judgment of people who were willing to take Michigan and only 6.5 points. You can decide which half they fall into.
Meanwhile, back in the real world, Treasury yields are right back to where we left them last Thursday before the holidays hit. The foreign exchange market looks like it’s doing an imitation of a market that remains closed. Emerging market currencies weathered the event by gently going up. Certainly not enduring any form of dislocation one could be forgiven for expecting. Gold traders are feeling a bit sheepish as their panic couldn’t take us much beyond the mid- point of last week’s range.
Don’t stone me for saying this, but it is incredibly healthy to have the stock market get hit and for investors to decide that it isn’t necessarily a proxy for the domestic and global economies. Lord knows there are enough challenges out there that could put stress on matters without jumping to the conclusion that we just witnessed the end of the post-crisis recovery. What you saw was most assuredly a panic, or something much more important. Some equity traders realizing that hedging some risk before earnings season isn’t always just money down the drain. For that be comforted.