Monday, December 5, 2011

Morning Market -- Consolidation Mania

The above charts are all the major indexes I track with the exception of oil.  The treasury market, gold and the dollar are all clearly in a consolidation area and while the equity markets have technically "broken out," their respective break-outs are extremely weak, indicating they are probably false break-outs.

Remember, markets can move either vertically or horizontally.  Ideally, we want them to move vertically because then we can make bets on the length and strength of the move.  While we can still place bets (make trades) when prices move horizontally, it's a much harder game to plan. 

So, what does all this mean?  There are a few points:

1.) The fundamental news hasn't changed in a meaningful way over the last 6 months.  The US economy is growing, bit slowly.  Europe is just this side of a meltdown; Asia is still growing, but they are growing more and more cautious given the macro situation.  In short, it's the same old song and dance.  In short, the markets tell us we're in the middle of economic stasis, which we more or less are.

2.) At the same time, the markets currently tell us that safety is very important (the high price of treasuries), there is still inflationary concern (the high price of gold), the US is still weak (the low position of the dollar) and the US economic rebound is in question (US equities).

3.) There is also some end of the year portfolio management going on.  Managers who had big gains are holding on to the last possible minute to sell to make sure they've locked in their gains for year.