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A Topsy Turvy Market, by Victor Niederhoffer
Everything has been topsy turvy over the last six trading days. To put it all into perspective, let me start with the beginning of the month on August 2nd, which was down rather than the old faithful up. Next, a weak employment report was followed by a terrible afternoon decline. The day before the Fed meeting (invariably bullish) was bearish. The move to the Fed meeting on Tuesday at 2 p.m. was also down, when, again, it is invariably always up.
When the Fed did not tighten, the market went down from 1277 to 1271. The next day the market had the expected rise to 1288, but then in the afternoon, for some strange reason, went back down to 1268. The next day news of the London arrests brought the market down to 1263 overnight only to rise to 1277 during the day, and close at 1276. Again, on Friday, the market looked like going back down to 1266, before closing strong in last half hour at 1272 with the United Nations announcement coming after the close, and the Saudi market up 2.5% on Saturday.
The one strategy that worked was do the opposite of what you should. When the news was good, sell; when the news was bad, buy. Five out of the last six days have been down. Two outside days in a row occurred on Tuesday and Wednesday. There were four lower lows in a row from Monday to Thursday, and a visit to within a point of that Thursday low on Friday at 1266.
At a time like this one can only take comfort in the thought that it is the summer, the market does not have its usual ways of making money, as trading is attenuated, and as usual, the unusual occurs.
I turn to the long term drift, the return from stocks of six percent a year, growing at five percent, versus a ten year bond yield of less than five percent, and quantify this in the Fed Model for a rudder in these stormy waters.
Jim Sogi adds:
The August 14th market was down on the day, on news of peace. Crude was down and gold was down. It again seemed topsy turvy. The market is up this morning, obviously. I read that the Fed gets the economic releases a day early. I wonder how closely guarded this information is. In Ed Spec Dr. Niederhoffer mentions that the Japanese seem to have good early information about economic data. Japan looked pretty strong last night and yesterday. Question: Why would the DAX be up so much also on the U.S. P.P.I. news?