Yahoo Finance An uneasy market now driven by 'daily fantasy' traders
This is one of those times when it becomes too tempting to assign colorful reasons to the market’s sudden changes of mood.
The overnight tumble in stocks, fresh weakness in commodities and bidding up of safe government bonds mostly reversed Monday’s reprieve for risky assets.
A scan of the morning headlines provides plenty of plot points for a good narrative: China’s president compared its economy to an unstable ship in rough water. Fed speakers have come of as muddled while attempting to sound vigilant, discussing the “close call” on rates last week.
And a “businesses behaving badly” theme is forming, with Volkswagen’s (VOW3.DE) false performance claims and a drug-profiteer villain stirring price-control talk and undermining biotech stocks.
Still, none of these stories are necessary to understand the S&P 500’s (^GSPC) unsettled state following its modest, low-energy rally Monday. In the aftermath of the cascading drop in mid-August, the market is mostly consumed by its own internal dynamics.
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As investors with cash hunt for unduly cheapened business and asset allocators modulate risk exposures, the day-to-day action is a push-pull among tactical traders trying to figure if the Aug. 24 low will hold, whether it needs to be “re-tested” and indeed whether the years-long trend itself has changed.
The S&P has alternated up and down weeks for 11 straight – tying a record set only twice before since 1928. Since the steepest part of the correction so far hit a low of 1867 on Aug. 24, the index has crossed the 1960 level 12 out of the 20 trading days.
Is there magic to the 1960 level? Who knows?
It’s almost exactly 5% above the 1867 low, if that matters. But as when the index was frequently crisscrossing the 2100 level near the top of its months-long range earlier this year, the more often it’s traversed the more importance traders and their trading machines treat it.
For those traditionalist chart watchers who believe that a proper bottom requires at least a “re-test” of the recent low, the next few weeks offer a neatly scripted chance to do it. We’re in the heart of the often-tough autumn seasonal period. If the bears can’t do more damage then, maybe they’ll have lost their best chance.
A passing “re-test” would involve the index itself getting back near 1867 but with less selling intensity, with fewer stocks making new 52-week lows compared to the Aug. 24 washout.
Long-term investors should feel free to ignore all this trader scenario planning, the way a pure sports fan scoffs at the legions of “daily fantasy” bettors hustling to make a buck off statistical anomalies
But unlike in sports, in times of emotional markets whipped around by tactical considerations, the stats mongers and opportunistic punters can actually affect the score of the game.
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