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Daily Market Update – September 9, 2015 (8:30 AM)
So China didn’t take the path lower after having had its financial markets closed for a total of 4 days and so our markets had no reason to continue on the strong path lower, having left off there before Labor Day. Despite the Shanghai market actually being down sharply until the final hour of trading in its afternoon session, very likely the result of government buying, the US markets were sharply higher from the beginning of futures trading on Monday evening. How long that disconnect may last is anyone’s guess, but this morning the US is poised to head higher in concert with China’s strong overnight market. It’s not often that we’ve been able to put a couple of consecutive days sharply higher together, but today may be the second of that kind of a series, if the market can continue in the same direction and magnitude as the morning’s futures trading. With little this week to keep markets back or to push them forward it might be hard to rationalize any kind of strong move that the market could possibly make. Heading strongly higher makes as much sense as heading sharply lower, only less. No one even tried explaining yesterday’s nearly 400 point gain, because there really was no plausible reason for such enthusiastic buying. Especially as the past month has seen only tepid buying on the dip and the end result, unless you’re basically a day trader, has only been disappointing, as markets simply gave up those gains. The past 6 weeks or so have seen a fair number of large moves higher, almost always following large moves lower, with the net result still being to the downside. While still in the early phases, the current market is very reminiscent of the latter half of 2011 when the market ended precisely unchanged for the year and rocked back and forth with such large moves, while going nowhere and seeing volatility increase fairly sharply. The volatility has now given back some of those gains, but there’s no reason to believe that it won’t get back on that path toward more historically normal levels, as there’s plenty of reason to feel uncertain about where the next stop may be. We may get some idea of where that next stop may be in a couple of week as the FOMC meets and may finally put to rest all of the fear of a tiny interest rate increase that no one believes will be bad for the economy, yet those dame people still run to the exits selling when professing how little such a rate increase matters. Until then, despite the temporary divergence of our market from CHina, any more bad news coming from there, including more dumping of foreign assets, especially US Treasuries, could give our stock market more reason for concern, until coming to the realization that there is no logical stock market investment alternative. While bonds may become an alternative for some if selling continues and rates rise, it’s not too likely that China will continue to do the equivalent of burning money in an effort to defeat market forces. Even they would likely come to the conclusion that they can’t control everything. I don’t think that I’ll be in the market for any new positions this week, as I don’t have much cash and I hate chasing prices. Instead, I would welcome any other opportunities to get some rollovers, even if in forward weeks and, better yet, find some way to sell call options on uncovered positions. While it may end up being a quiet week for trades, I wouldn’t complain if the only result of the week is to drive paper profits for a change.
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