Manic Depression
Posted on Friday, June 28th, 2013
Market cannot seem to get over its Manic Depressive behavior. Volatility is still the rule of the day. The Dow Industrials were down about 140 points after the opening this morning only to retrace all of its losses before 11am. The Federal Reserve purchased about $5 billion worth of securities this morning from 10am until 11am and that may have helped a bit. Earnings season is not off to a banner start with Accenture’s disappointing outlook.
The stock market has found important resistance around its 50 DMA of 1620 but that rebound has been on very on light volume. The light volume is not a real confidence builder. Investors may have come undone in several asset classes as investors seem to have thrown the baby out with the bath water. Window dressing may have exacerbated some assets troubles as investing pros do not want to show emerging market debt, high yield or gold on the customer’s statement going out next week. All took a tumble this quarter especially after Bernanke’s comments this month and may have fallen further than justified. We still think that the Fed intends to peg rates around 2.5% on the 10 year.
Billionaire investor Ron Baron made waves on CNBC this morning with his pronouncement that Timothy Geithner, the former Treasury Secretary, feels that the eventual wind down of QE will take at least 5 years. A bit longer than most are thinking. Federal Reserve Governor Klein’s comments this morning has markets back to thinking that QE will start in September of this year and Bernanke’s statements have investors thinking that QE will end by mid 2014. Dudley and Bernanke both gave timelines that have the wind down of QE starting at the September meeting. Any later and you run into end of the year funding issues and the end of Bernanke’s term. September is the target for now.
The Holiday next week is sure to have trading desks very lightly staffed. The volatility should die down next week as junior traders are not going to be willing to take much risk with the boss in the Hamptons. Volumes may become even lighter. July and August have a history of being decent months but history hasn’t been very good guide of late. The last week in June is supposed to be a real stinker but it looks like it will manage a positive move this year.
QE cannot go on forever and I suspect that the Fed saw the risks of QE outweighing the benefits as asset bubbles were blowing (and the fiscal deficit was shrinking). End of the quarter and Russell rebalance may dominate today. IBM is weighing heavy on the Dow. Market is getting back some of its losses over the last couple of days but caution remains until it can surmount its 50 DMA. Until then the bears have the ball. Light week next week. We are traveling and will be back blogging next Friday.
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.