Off the charts and off the rails

I will entertain questions at a future point, as soon as the algorithm explains to
me how it came up with this conclusion.

A weak ago the cautious were, as they had for weeks, finding fault with the stock surge since the March stock fall. A correction was due. But there was reason, they said, to believe Russell 2000 (smaller) stocks still had room to improve, as the surge had been top heavy on big stocks. The big indexes are ruled by megacap (FANG) stocks, and their brilliance obscures the market’s actual strength.

Still, the market fall on Thursday saw The Russell index dive 7.8%, to obtain a three-day decline measure of 11.8%, which is God’s definition of a correction. While the Dow and Nasdaq fell too, they didn’t reach the threshold of correction. The market took a significant step back up the ladder on Friday.

This activity is shadowed by odd day trading beachheads that see Hertz--  in bankruptcy court—launching a $1Billion stock offering because, well, it’s stock is going up.

Randall Forsyth at Barron’s implies money chasing dreams like this is not smart money. He  attributes the odd behavior to the liquidity the Federal Reserve is injecting in companies of all ilk. According to Louise Yamada, cited in Forsyth’s Jun 15, 2020 column,  the market is going through a consolidation phase and “mental stop-loss orders” are in order, he writes. The day traders raise the odds, some think, that things are going of the rails as they go off the charts.

An investor like Bernard, looking at the good fortune of re-reaching the stocks’ March pinnacle aloft, would think to bail last week, but would get involved with the flotsam of the day and let it ride  – how prescient would Bernard and friends have been viewed  if they’d left in March? After the slight reprise,  will the week past’s alarm lead them to sell this week upcoming, or ride? To drop out of the 500 for now – the trouble being that everything (including bonds) seems to walk in lock step.

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It is easy to update these blogs so I will tell you what happened next. The market dove at the Monday a.m bell about 500 pts (Dow) and 46 (S&P) (to a less than magical sub-3000 price of 2994). THis followed in my opinion sharp losses in Asia and EU markets. WSJ and others saw it as Covid-19 concerns. But the veil lifted at lunch and the day was an up one in the end, Maybe some people had weekend second thoughts and their dopplegangers (evil twins) saw buying opportunities in this malaise. Or maybe it was the programmed trades. Maybe it was Fed Chief Powell' s latest big put on bonds, which was announced Monday. Did Covid-19 concern drive the downside? Did Powell drive the upside? Or is it just unreal reality?

Referenced

https://www.barrons.com/articles/stocks-swoon-as-mr-market-cant-seem-to-make-up-his-mind-51592009542