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The key event on the calendar is the next Fed decision on Wednesday, June 19. If the Fed strikes a hawkish note, all bets are off. However, should they refrain from suggesting imminent tapering that may well give the market license for a scorching summer rally.
To the surprise of most market participants, the Fed did indeed strike a hawkish tone and suggest imminent tapering which could begin as soon as September. In response, the market experienced the worst selling of the year. At Monday morning’s lows around 1560, the S&P was 127 points (7.5%) off its May 22 intraday high.
In tennis, no man’s land is the uncomfortable area between the service line and the baseline where a player cannot easily hit a volley or ground stroke. Players in this situation are like a fish out of water or Rafael Nadal in the early rounds of Wimbledon. As a result of the Fed’s intention to taper and the resulting technical damage, the market now strikes me as being in no man’s land.
“When the facts change, I change my mind” said J.M. Keynes. The incredible rally over the last 7 months, spurred by massive injections of liquidity by the Fed, has been undermined. It is hard to envision the market making new highs if the Fed does in fact taper. On the other hand, they are just talking at this point. By the time September rolls around, things may look very different and the Fed may be singing a different tune.
For my part, I have liquidated most of our trading positions and raised cash. I am holding on to our core long term positions, both long and short, but I am waiting for more clarity before further defining our portfolios for the short and intermediate term.
I walked into the office yesterday evening and there was someone on CNBC talking about how the 50-day moving average of the S&P 500 rising above the 200-day moving average was telling us the market was getting ready to rise…
It’s my opinion that we’ll look back at last week as the 2008 trading low (not to be confused with a market bottom) before a harsher downside comeuppance arrives next year. – Todd Harrison, “Have we seen the 2008 trading…
Interesting Business Week piece on hedge funds increasing interest in government policy: “Hedge Funds Keep Watch On Washington”, September 22. Obviously, as Washington plays a bigger and bigger role in the economy, investors need to understand the impact of government…
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A good rule to follow (first promulgated in 1923, as far as I know) to check if good news is a prelude to further good news is to note the stock’s (or market’s) behavior after the event becomes widely known. …
The money supply’s rate of growth is nothing short of jaw dropping. – Irwin Kellner, “Follow the money”, Marketwatch, Tuesday March 25 According to economist Irwin Kellner in an article on Marketwatch today, M2 money supply grew at annualized rate…
