Volatility Wins The Day...
FUNDAMENTAL ANALYSIS
The Dow ended lower today by 120.96 points on more volatility. With all these volatility talk so far, what exactly is volatility?? Why is everyone talking about volatility? Well, in laymen terms, volatility means that the market will either go up or down in huge, sudden moves which defies short term prediction. Under such market conditions, one needs to adopt a longer time scale. Right now, it seems like there are 2 tribes in the market right now; The Recessionist who thinks the US economy is near or is already in recession and bangs on the weaker dollar, subprime mess and crumbling consumer confidence; The Expansionist who thinks the US market is going to do well even though growth has slowed down. I am definitely an Expansionist who continue to believe in keeping America great. Just look at the bond yield curve right now (See daily yield curve here)! The curve is getting steeper by the days with the long term yields systematically declining! Just look at the Fed Fund Futures! Already pricing in a more than 25 basis point cut! Think America is missing out on the global growth and that the rest of the world is "decoupling"? Think again! Growth is simply a number! Anyone who started with zero would show surprisingly huge growth on the slightest, smallest improvement! Here's to draw an analogy: A company CEO hires a new worker. That worker's pay improved by $1200 a month from zero! Now, that's a huge "growth" for that worker and at the same time, did nothing for the CEO. However, at the end of the day, the CEO is the one who makes the big money when the company does well. That company is now Earth.
TECHNICAL ANALYSIS
More volatility indeed. There are 2 interesting things to take note of today. 1, the gains of 3 days ago continue to hold up and as long as the low of 13 Nov remains intact, we could see a short term run from here. 2, the total equity put call ratio (see daily put call ratio here) SURGED over 40% against yesterday! This is indicative of an excessive bearishness in the market and such excess bearishness usually leads to a short run rally. We saw the same pattern back in some of the key reversal periods previously too. Overall, I would agree that this is a very volatile and dangerous market but with a slight hint of bullishness already magnifesting.
The Dow ended lower today by 120.96 points on more volatility. With all these volatility talk so far, what exactly is volatility?? Why is everyone talking about volatility? Well, in laymen terms, volatility means that the market will either go up or down in huge, sudden moves which defies short term prediction. Under such market conditions, one needs to adopt a longer time scale. Right now, it seems like there are 2 tribes in the market right now; The Recessionist who thinks the US economy is near or is already in recession and bangs on the weaker dollar, subprime mess and crumbling consumer confidence; The Expansionist who thinks the US market is going to do well even though growth has slowed down. I am definitely an Expansionist who continue to believe in keeping America great. Just look at the bond yield curve right now (See daily yield curve here)! The curve is getting steeper by the days with the long term yields systematically declining! Just look at the Fed Fund Futures! Already pricing in a more than 25 basis point cut! Think America is missing out on the global growth and that the rest of the world is "decoupling"? Think again! Growth is simply a number! Anyone who started with zero would show surprisingly huge growth on the slightest, smallest improvement! Here's to draw an analogy: A company CEO hires a new worker. That worker's pay improved by $1200 a month from zero! Now, that's a huge "growth" for that worker and at the same time, did nothing for the CEO. However, at the end of the day, the CEO is the one who makes the big money when the company does well. That company is now Earth.
TECHNICAL ANALYSIS
More volatility indeed. There are 2 interesting things to take note of today. 1, the gains of 3 days ago continue to hold up and as long as the low of 13 Nov remains intact, we could see a short term run from here. 2, the total equity put call ratio (see daily put call ratio here) SURGED over 40% against yesterday! This is indicative of an excessive bearishness in the market and such excess bearishness usually leads to a short run rally. We saw the same pattern back in some of the key reversal periods previously too. Overall, I would agree that this is a very volatile and dangerous market but with a slight hint of bullishness already magnifesting.
Labels: consumer confidence, fundamental analysis, technical analysis, us economy, us market
posted by Jason Ng at 3:59 PM
0 Comments:
Post a Comment
<< Home