Anyone who’s not 100% cash has already picked a side in the war, and once you have a side here it’s gonna be hard to switch.
Basically, all the economic news is bad with only rumors of a QE being the only possible good news in the next few months. Yet the bulls have fought hard this week by continuing to assert the market is oversold and we’re due for retracement. This is technically correct but the problem with this assertion is that it assumes 1) the last correction was mostly overreaction because 2) the market had already almost correctly priced in all possible future bad news. Bad news is irrelevant to the bulls now: there’s not even a rationale for why it matters now, it’s simply all discounted as having already been priced in.
If you read point two out loud there you’ll realize how retarded it sounds. The market has already priced in all unknown future events correctly. Of course, they’re not idiots and I’m not trying to knock down a straw man here. What they mean is that they’ve priced in, as best they can, the “worst case scenario” from all risks on the horizon. The problem is that humans are not very good at predicting rare events and each large market actor has an incentive to minimize them further in order to render greater short-term gains.
The only real bull case was that -6% is too large of a correction and the market’s oversold. That said, the 5% gains of January were equally large and based on nothing but optimistic data and rumors, almost none of which have come through. What’s interesting is that while the Euro crisis gets all the headlines, the US is actually not doing that much better economically, though of course it’s much more stable politically. Take a quick look at the FTSE and the S&P over a 3 year period and you’ll see some divergences that are not justified by economic data. If you add in the (somewhat unrepresentative) Shanghai index the divergences get even stronger and stranger. Add in Japan and the picture gets absolutely terrifying. America is the largest economy but collectively the Eurozone more than matches it. Again, the problem isn’t Greece, it’s that Greece can’t be dealt with since nearly all of the other european economies are in trouble too. Greece just puts a particularly bright spotlight on the fundamental economic problems of europe.
The economy is not a zero sum game in any sense: generally either everyone wins or everyone loses–1929, 1987, and 2008 were all American crashes with American causes yet they took the world down with them. As Greece languishes with unsustainable austerity or unsustainable debt it looks like they may get the worst of both worlds and other countries could follow shortly after, at which point the first country to full-on default will knock 500 points off the DOW that afternoon.
Of course bulls run the market 90% of the time (as it should be) but when they fight the fundamentals and the news too hard they cause crashes.
Today should be the one that sets the tone for the next couple of weeks. The last two days of rallies in the last thirty minutes are pretty unlikely here since it would be a rally into a long position over a three day weekend when basically 90% of possible news is going to be bad so the bulls will need to be in control for most of the day if they want to close up 5 days in a row. I would be very, very surprised if we put off this day of decision until monday, so I’m expecting a very choppy market (like everyone else) with a serious chance of resistance levels being broken. I’m bearish here as it just seems like there’s way more downside than upside.
