The collision of global markets and social mood

Friday, August 22, 2014

Yellen & Draghi Saddle Up In Jackson Hole

Yellen due to speak from Jackson Hole at 10am EST and Draghi at 2:30pm (if they can keep him off the bar saddles at the Million Dollar Cowboy Bar, just kidding).


The bar stools are actual leather saddles which are fun to sit in but easy to fall out of after a few. Janet and Mario may need to commiserate over the latest socialist blooper, this time in Venezuela.


How would you like to get fingerprinted in order to buy a nice bunch of kale? Apparently nothing goes too far for socialists.

Also, check out the irony in this marketwatch story:


The metaphor may be about the firehose of information coming out of Jackson Hole, but the hidden meaning (possibly overlooked by the editors) is the gush of liquidity coming from the Fed.

That liquidity may be reaching its limits. Futures look pretty freaked out in the overnight session. JH could serve up some hints to a market that is priced for perfection but looks awful under the hood.

Let's not forget a key passage from one of the greatest trading books ever written, Edwin Lefèvre's Reminiscences of a Stock Operator, based on Jessie Livermore:

When my buying does not put the stock up I stop buying and then proceed to sell it down; and that also is exactly what I would do with that same stock if I did not happen to be manipulating it. The principal marketing of the stock, as you know, is done on the way down. It is perfectly astonishing how much stock a man can get rid of on a decline.
 

I repeat that at no time during the manipulation do I forget to be a stock trader. My problems as a manipulator, after all, are the same that confront me as an operator. All manipulation comes to an end when the manipulator cannot make a stock do what he wants it to do. When the stock you are manipulating doesn't act as it should, quit. Don't argue with the tape. Do not seek to lure the profit back. Quit while the quitting is good and cheap.

Any form of stimulus, QE or otherwise, is a form of manipulation. It is outside assistance which acts as bait to buyers. Free money gets used to buy assets than increase in value when more people buy them than sell them. As long as the money is freely available, buyers buy. When the buying wanes for whatever reason, there is little to support them and prices fall precipitously.

For whatever reason, something has spooked futures. The reason doesn't matter. With so few players in the market as signified by dismal volume readings as the rally has progressed, the market may simply relocate to where more buyers and sellers conducted business. The closest level seems to be the 1970 area. There is another one at the 1950 area, but it would "break" the wave structure of the rally. Below 1941.50 would suggest much lower levels to come.

Otherwise, the next highest Fib target, after the psychological 2000 level, remains 2014.18.




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