"We do indeed seem to be entering, in global terms, a period that is strikingly akin to the week, months and years very like that in the late 80's in Japan when that market 'went parabolic' to the upside. Why markets 'go parabolic,' is not a subject given to business school doctoral dissertations, for there is usually no real fundamental reason for them doing so. Indeed, there is every reason for them not to do so for prices move to levels that are simply unjustifiable in any terms economic. That matters not, however, for the psychology of the market trumps all other concerns and the quicker one learns to accept that fact the easier it is for one to deal with, trade in, profit from and eventual remove oneself from the events that shall transpire. Markets are psychological animals rather than economic ones...a lesson hard for many to learn. This market, however, is now at that point where psychology does indeed fully trump economics.
This is something I have grappled with as well -- how the market can move higher in the face of a slowing economy. I dealt with it a bit in this post where I essentially argued the market is reacting to itself rather than the economy. By itself, I am referring to the prevailing trend combined with the massive liquidity of all the recent M&A deals going on.
However, I think the best explanation still comes down to the old trading rule, "the trend is your friend." Right now we have an upward trend that has been in place for a few weeks. The longer it stays in place, the more important it becomes in traders' minds.
3 comments:
Why shouldn't an intrinsically weakening market not continue to do a moon shot when it's being driven by professional traders. They're all sure that they'll know just precisely when they should punch out to prevent from getting toasted. Of course, when everybody's rushing for the exits, everybody gets trampled underfoot. That seems to be forgotten while everyone's drinking the heady elixir of exuberance.
it seems to have been fueled by the record short positions on the equity markets. i feel it's similar to the crowded dollar short after the 2000 bubble. buffets bet didn't trade quite as well since the crowded short prevented the dollar from weakening considerably more. once the trade went the wrong way for a while and the specs were squeezed out, the dollar fullfilled it's destiny (still so today!)
i think the february mini selloff caused a further short position to be placed on the equity markets at precicely the same time and has been easy prey for hedge funds that know exactly how much pressure to apply to wring the speculative shorts out and collect the ransom. we'll see if they can complete the other side of the pick-pocket by selling their longs to the specs at precisely the wrong time to be holding longs.
12,000
13,000
13,400
do I have 14....SOLD!!!
to the gentleman with 2 eyepatches
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