The market action for the next 2 weeks is crucial to the investor sentiment. Today marks the return of head traders and Sr. fund managers to the street from vacation. The market action will tell you how they feel about the current environment. Currently the Dow is set to rally 150 points at the open on the "expectation of a rate cut". But if the only reason for the rally is the rate cut, then I'd be a seller into that rally. Interest rates do not operate in a vaccume and do not by themselves decide the fate of the market (this is yet another popular myth). Here is some news from Japan to attest to this statement:
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The government's monthly economic report, issued by the EPA earlier Tuesday, showed recent falls in Tokyo share prices and sliding
long-term interest rates were deepening the gloom surrounding an economy mired in a prolonged slump.
The EPA report maintained its overall assessment that the economy was in a ''prolonged slump,'' but changed the wording to describe
conditions as ''extremely severe'' instead of ''exceedingly severe.''
''We revised our assessment slightly downwards by changing the expression to show an increase in severity,'' Takashi Omori, national
economic division director of the EPA's Research Bureau, told reporters.
The EPA report did not take into account this week's dramatic rebound in Japanese shares and the yen.
Tokyo stocks ended Tuesday morning trade up 2.32 percent at 15,132.72 -- the first time the key indicator had regained the 15,000 point
level since August 26. The dollar, which traded at over 147 yen in mid-August, was at 131.99/04 at Tuesday midday.
Despite a drastic step taken three years ago Tuesday to cut its official discount rate to a record low 0.5 percent -- where it has stayed ever since -- Japan has failed to attain a strong economic recovery.
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Also note that in 1989 Nikkei was at 40,000 and now, almost 9 years later, it is at 15,000. This should make you ponder the other popular myth, that in the long run stocks always go up. Of course if your time horizon is a few centuries, I'm sure that axiom holds well.
Best of Luck
Sun Tzu
P.S I can't do it all by myself; does anyone else want to discuss their trading strategy?
PPS There is now net outflows from equity funds and the 4 week moving average of flow of funds is flat (i.e 0)
PPPs I'm still waiting for historical yield charts (10 year yields for the last 100 years would be nice). |
