WASHINGTON, May 6, 2015 – The stock markets greeted investors with a welcome uptick in this morning’s early trading. But sure enough, word that Fed Chair Janet Yellen considered U.S. stocks to be “overpriced” currently got the bears back into action, driving the market down over 130 Dow points as of 1:30 p.m. EDT. The S&P 500 and the NASDAQ are getting clobbered as well.
Trying to trade this slip-sliding action is becoming a bit like trying to pin down a greased pig in a state fair contest, which is why we posted the metaphorical photo you see above. If you’ve ever tried to catch one of those squealing, wriggling porkers, you’ll know what we mean. You just can’t keep a grip.
But that’s just what’s been going on in markets from the very earliest trading days of 2015. It’s getting seriously frustrating, particularly when you’re not making a lot of money, which we are not.
Tech and biotech stocks in particular continue to get hammered lately, although they had a heck of a good run-up first. Meanwhile, our beloved REITs, despite their generally high yields, are getting their metaphorical faces rearranged as well, many of them being smashed down 3 to 7 percent in just the last three trading days.
Oil prices in dollar terms continue to firm once again, still in a rapid ascent from the apparent bottom of $43 and change per barrel that West Texas Intermediate (WTI) just hit last month.
In turn, a significant part of this bullish price action is due to the dollar’s amazing sinking spell vs. the euro in just a two- or three-week period. The dollar-euro pair hit a recent bargain basement price of roughly $1.04 to the euro—a breathtaking improvement over the $1.40+ it took to buy a single euro roughly a year ago.
But just over the past few weeks, the buck has slipped back to approximately $1.13 to the euro as we write this article, roughly a 7 percent rise since March 16.
For the Maven at least, these yo-yo movements chart unprecedentedly huge swings in value for this currency pair in a market that, in normal times, moves =/- $0.001 or so on an average day.
Attacking from the opposite end are U.S. bond prices, which are sinking like a rock. This, in turn, effectively increases the return on a new bond investment. Since bonds pay a steady rate of interest, bond prices fluctuate each day, keeping the value of that rate in line with current interest rates. In other words, as the Maven used to teach in his investment classes, when interest rates go up, bond prices go down; and when interest rates go down, bond prices go up.
In this case, bond prices have been going down big time as interest rates have been scooting up. Not to worry for most of us, just yet. Most individual investors don’t carry that much of a direct bond portfolio. But the portfolios of those who do are getting taken to the woodshed by what’s going on, which then ties back to the bond-like returns available via REITs, preferred stocks and utility stocks.
It’s all sort of incestuous, really, but it’s been bad news for a market already battered by negativity throughout 2015.
In the main, markets are just a mess and are very likely in the throes of a serious re-pricing now that free QE money is allegedly on the way out. At least the selling action of the ghoulish bond vigilantes would continue to support this notion. The way the bond action has been going this week, you’d think the Fed was about to hike rates by about 2 percent in about a half an hour from now.
It’s all very confusing, which leads us once again to take a bye on providing trading tips today. Any tips that anyone—including the Maven—happens to be spouting today are so likely to be wrong that it’s probably just best to sit and wait until the current bout of selling exhausts itself.
The McClellan Oscillator—a measure of buying vs. selling action that tends to accurately track extreme overbought or oversold levels—is on the verge of indicating oversold conditions. That means that either a nice rally (at best) or a “dead cat bounce” (at worst) could soon be at hand as early as late afternoon (Wednesday).
We shall see. Meanwhile, we have better things to do than watch the carnage today. So, after a brief Maalox moment, it’s outside we go to start cleaning up the deck in preparation for summer revels.