Sunday 8 September 2013

Not a day for the faint hearted

The US market broke out of resistance almost a week ago but  it has yet to give me a buy signal. The market closed on Friday with very little change. However, there was a drama that all took place in the first couple of hours of the day. And what a day it was. I cannot imagine how I would have been feeling if I had a position in the market.

At the open it was over 60 points higher but after five minutes it began to tumble and dived almost 200 points in the next 30 minutes. After that it recovered all of that lost ground over the next hour and a half and then continued to rise a little more so that by lunchtime it was up on the day. In the final hour it proceeded to lose the ground it had gained and closed a little lower than it had opened.

The first chart shows how all this panned out, five minutes by five minutes, with Thursday's movement for contrast to show that Friday was unusual.



So what happened? There were two important news announcements. The non farm payroll (we would call them employment figures in the UK) and the unemployment figures. The market always has an idea of what to expect when these figures are released and normally reacts when the figures are above or below expectations.

The unemployment figures were in line with expectations but the Non-Farm Payroll increase was much lower than expected. There should have been big disappointment because the figures mean that the economy is not doing so well. But we live in an Alice in Wonderland world. Good news is bad because it means that the Federal Reserve is likely to stop printing so much free money and the asset inflation which has been driving the market will come to an end and vice versa.  Hence the initial spike. But here was a degree of confusion because there was substantial revision to earlier figures which meant it took a little while for the market to chew over and digest what the figures were saying. Some thought that money printing would stop others that it would continue. By the time the market closed no-one knew what to think so the market ended more or less where it started.

Interestingly, despite the drama of the day, there was no big shift in volume of trade suggesting that the smart money has yet to decide what to do. I wonder what Monday will bring?

A lesson from Friday's price action is that once the market gets it into its head that QE will end and interest rates will move upward we will likely see a huge slide (hence the 200 point fall inside half an hour). No time to run and hide. You have been warned.




1 comment:

Anonymous said...

That piece of analysis was an eye opener. I have TESLA in the US and a stop market order. It could have been triggered during the dip and I would not have known why. Looking at 5 minute intervals is not for the feint hearted though as it could drive one bonkers worrying about the next move!!!!

Thanks Paul.
BC!