WASHINGTON, February 4, 2013 – What goes up must come down. That may be an old cliché, but it never ceases to be true, largely attributed to Newtonian physics, we expect, even though Sir Isaac apparently never said this.
At any rate, true to form, after last Friday’s irrational exuberance, the market decided to fall to earth this morning, just because. The Dow is off about 140-something as we write this around noon today, and we’d guess that the rest of the day will remain true to form unless what investment advisor Dave Fry calls the “2:15 p.m. Buy Express” shows up on time and blows all the bears, the shorts, and assorted HFTs right out of the water again. Day trading at its finest.
Actually, maybe this is the “equal and opposite reaction” part of Newtonian physics, whatever number they’ve assigned to that particular train of thought. Then again, since we barely managed a C in high school physics, maybe we shouldn’t be messing with this kind of metaphor. But it seemed pretty convenient and more or less describes the market’s yo-yo-like tendencies these days.
Anyhow, moving right along… techs seem to be the guilty party for this morning’s selloff, although the oils aren’t too happy either. CNBC claimed earlier in the day that the selloff was due to unpleasant, heretofore somewhat dormant negative news was emanating once again from Europe, but that’s just the usual airwave-filling blather. With the market achieving the relative altitude of pre-Great Depression II 2007 last week, averages had hit what technicians call “resistance” toward going higher and are now likely undergoing a “pullback” prior to ascending again for a “retest” of those lofty levels from last week.
Or at least, this is the way the tech traders used to talk. Most time honored trading and investing theories have been blown out of the water over the last few years by the algos, the HFTs, and, most obviously, by the crate loads of Benjamins being air-dropped by our very own Ben—Bernanke by name, or “Helicopter Ben” by his detractors.
The HFTs’ computers simply trade the market based on the often-stupid headlines posted by financial publications. This kind of video gaming has absolutely nothing to do with investing, but right now the Feds refuse to do anything about it, so the wild gyrating continues unabated. The algos rationalize such trading with a bit more math, but as far as we’re concerned, it’s the same old crappola.
Meanwhile, Helicopter Ben has been dropping cargo loads of money on banks (and indirectly on investors) via QE-whatever. And the vast quantities of billions of dollars entering the market daily via this route is steamrolling through any attempts at all to sell off this market, at least for now, which is precisely the Fed’s intention—the inflation of assets.
What it all means is that anything you do in this market that’s at least somewhat rational is bound to get derailed sooner rather than later. You’re mostly forced to trade based on the whims of idiots, and that’s all there is to it. The idiots wanted the market up last week and so it was. The idiots apparently want the market down today and are likely taking a nice chunk of January profits to accomplish this.
Another reason they want it down is that they want out for a little while, or else they want to go short for a little while until Round 2 of the fiscal cliff nonsense, the sequel known as the “sequester” gets resolved. Ultimatly, once again, what goes up seems doomed to come down, as is proven by the cockeyed optimist in the following video:
As far as we’re concerned, we’d just as soon see the darned sequester because that’s the only way the Federal budget monster can be halted from growing, at least for a while. The Government these days reminds me of Audrey II in Little Shop of Horrors: “Feed me! FEED ME!!!” It would be a swell thing to see the Feds go on a little money diet for a while just like you and the Maven have been doing for 4-5 years running. Well, we can dream, can’t we?
Anyhow, let’s just expect a down day today and maybe tomorrow, too, as this nonsense works its way through the system. We’ll continue to pare down a few profitable positions that appear to be petering out, although we remain on alert for relatively quick trades. We also continue to sit on MLPs and REITs, although those that have recently paid dividends and are starting to look weak may get pared. We’ll have another quarter to get back into them again to collect the swell dividends, and we may be able to do this at better prices as well.
At any rate, travel with caution today and we’ll see you here again tomorrow.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any ar500ticle under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
Follow Terry on Twitter @terryp17