Daily Market Update – March 20, 2014 (9:30 AM)
After yesterday’s late day swoon following some confusion and maybe too much candor from new Federal Reserve Chairman Janet Yellen, it looks as if the market is willing to forget the brief pseudo-panic and move forward.
After a few years of press conferences in which very little was said that surprised anyone or took the markets for a ride, it was an unexpected reminder of how tentative and fickle prices may be at any moment in time.
The market’s initial reaction to yesterday’s confusion was a good example of the perils of trading at or near historical highs even when there is news to support such highs. When the support is less than compelling it probably doesn’t take too much to see a sudden shift in gear.
What you never know and sometimes sit in fear of, is at what point do you reach a breaking point or when frenzy begins to feed upon itself. In the case of a short squeeze most of us like that kind of self-feeding frenzy, but when the market is heading lower it’s a completely different set of emotions.
However, there was never really a true sense of panic at any time during the 56 minutes or so of reaction and the market did recover nearly half of its very quick loss, so the news can’t be all bad.
When these kind of things happen it does have to make everyone watching increase their level of unease, even if you can put somewhat of a positive spin on the outcome. Even if the phenomenon is short lived it has to leave at least a little bit of an imprint on people’s minds and maybe a little bit of hesitancy regarding increasing risk levels or the kind of risk taken on.
On the flip side you’ll find those who will now say that some of the uncertainty regarding interest rates may now have been removed and that lifting of uncertainty clears the way for the market to move higher.
The nice thing is that either of those scenarios will eventually come true. One or the other. Unlike 2011 when the market finished unchanged for the year or when green comes up on the roulette wheel, something is likely to happen and one group will be able to point to their visionary prowess while the other will conveniently ignore their position and pretend to be unwounded and just move forward.
What you can be certain of is that some algorithms are being re-tweaked and certain words in official statements, speeches, or off the cuff remarks will be given new weightings based on yesterday’s comments. That’s despite the fact that there is no definitive intent confirmed in yesterday’s comments. Instead, they’ve been interpreted in any number of ways.
For me, my vision runs out at the end of each week. I just want to get to that endpoint and start wiping off the lenses to see what may be on the next near term horizon , which generally happens to be a week or two away. I’m not thinking ahead to this Fall, nor much less to the Fall of 2015, as those focusing on interest rates have suddenly set their sights.
With a reasonably calm opening looking likely that provides some level of comfort that yesterday’s sell off won’t do irreparable damage to the ability to see respectable numbers of assignments and rollovers tomorrow.
This is looking like another in a recent series of weeks in which relatively few new positions have been opened. Fortunately there have been a number of existing positions finding cover, even if only briefly for “DOH Trades” but that does help add to returns, little by little.