WASHINGTON, December 10, 2015 – As of 11 a.m. EST, U.S. market averages are all nicely up in the neighborhood of 0.5 percent. This, of course, doesn’t come anywhere near to repairing the recent damage to stocks and market averages, many of which broke that magical 200-day moving average—something that usually signals to technical analysts that it’s “look out below” time for stocks.
Frankly, these prognosticators are probably right, more or less, although we will likely get some rallies between now and the end of 2015 as traders and individual investors square up portfolios and decide which dead-meat shares to sell at a loss for 2015 tax purposes.
Financials—mainly banks and insurance companies—are trying to recover a bit yesterday, as markets still fear the Federal Reserve will pull a genetically-modified interest rate out of their government hats next week, linking a new round of QE (money printing for the rich) with a very modest interest rate hike. This is the way markets are betting right now, as indicated in currency-pair trading between the dollar and the euro. At least right now.
Oil continues to be the sick man of Wall Street, having dropped below the $37 handle for West Texas Intermediate (WTI) Wednesday. It rallied a bit this morning, but is now down 30 cents again, hovering around $36.86 as we write this.
The market was due for a rally today primarily for two reasons. First, as always happens in a rapid market collapse, shorts begin to pile on unreasonably, inspiring bulls to bid stocks up, causing a “short squeeze.” Since short-sellers make money when stocks go down, they get hurt if stocks they’ve shorted start going up, sometimes rapidly. If so, they must quickly sell to avoid losing their shirts.
If the bulls’ short squeeze gets irrationally exuberant, sometimes brokerages houses are forced to close out short positions to raise cash, adding even greater pressure to the bull move. We’re detecting some of this right now.
Adding temporarily to the buying pressure is the weird, relatively recent phenomenon of the post-Europe close buying binge that happens nearly every day. Keeping in mind the fact that international trading action occurs 24/7 “as the world turns,” as one set of markets closes, another opens. In this case, European markets generally close at 11 a.m. EST, a couple hours after trading commences on Wall Street.
For some bizarre reason, perhaps only known to the captains of industry, vulture capitalists and the elusive Gnomes of Zurich, when the European markets close, U.S. markets stage brief, sometimes intense rallies usually between the hours of 11 a.m. and noon. Those rallies may or may not persist, but right now we’re rallying, despite the Fed and despite those extra-low oil prices.
As investors, we know what we like or want to like, but we’re essentially in stasis right now. Every decision is likely to be the wrong decision until we get some definitive decision from our dithering Fed. So we continue to develop a “watch list” of stocks, sell a few losers here and maybe add little bits of promising, commission-free ETFs there, and keep or raise cash. There is, for now, no clear way ahead.