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Every crash has a trigger, what will it be this time?


Mercury

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Recently there was chatter about USD rate rises and there was 1 by the Fed but since then nothing but excuses for why they should delay their promised additional 3 rises.  In the current situation, with every other CB dropping rates (Australia last night coming later to the feeding frenzy) and with government debt so high does anyone believe rate rises are imminent?  Economists have been talking about the "new normal" for a few years now, but that all sounds like a feeble attempt to justify their defunct models.  The markets certainly do not seem to think rates will rise.

 

QE is done, at least in the US and the UK, but there is also talk about QE4 now.  The end of QE did not provide the trigger for a crash (or correction if you prefer...) although some say there would have been one if the CBs had not once again stepped in.  Fundamental economic data releases don't seem to do the trick either: good data and everything is awesome and stocks go up; bad data and everything is fine because the CBs will step in again and stocks go up.  Ironically where QE is still rampant (Eurozone and Japan) stocks are not as rosy as the tipsters would have us believe as everyone and their dog advise to be in Eurozone and Japan.  In reality it is the US that is keeping this bull frenzy going and when the Yanks finally realise they have, like Icarus, flown too high and the air is too thin and the Sun is too hot...?

 

I believe markets are driven by sentiment and that can turn on a dime as the herd (the flock might be a better analogy...) suddenly turns.  At some point the flock leaders will realise that the game is up and no amount of QE and NIRP will halt the decline that is already in play.  They will feel over exposed as CBs are seen to have no arrows left int he quiver, or only the nuclear options (helicopter money), which to me would be an admission that they have not been successful with their policies.

 

In the end it is earnings that rule over all.  Q2 earnings are turning out to be dull, dull dull and the classic forecasting hockey stick is getting more out of touch with plausibility.  If not Q2 then Q3?  Or will it turn before then...?

 

Check out this article for an update on Q2 earnings.

 

http://davidstockmanscontracorner.com/the-wall-street-hockey-stick-fades-again-sp-500-eps-drops-another-8-in-the-past-month/

 

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Thanks for the link  an interesting article.

As you know, I'm still somewhat in the novice arena when it comes to trading but I have to admit that the more I try to learn about (classical) financial markets the more I find that their behaviour is not actually behaving!! At least not currently.

As you say, if earnings are good - stocks go up but if earning are bad stocks go up on anticipated CB stimulus which is a situation that surely cannot continue? Can it?

I read a lot about bears and bulls and how to ascertain who has the upper hand to help my trading, but I'm starting to think that there are a **** of a lot of sheep out there (Is there such a thing as a "Sheep Market"?) and while I'm on that subject, I'm starting to suspect there may even be such a thing a "Bot Market" lol

Having said that it's looking like Bear O'clock on the US indices today. Although I feel it may be a correction rather than the big drop being anticipated by many. We'll see.

Meanwhile I think a retouch of 2160 on the S&P may well tempt me into a decent sized short :)

Mac

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There are Sheep  and Hogs.  What happens is that the sheep and hogs get trampled and slaughtered by the Bulls and Bears by getting caught in the middle.  They don't realise until far too late that the markets have turned OR like frightened children, they turn too early, turn into the oncoming herd.  You ought not to be surprised to learn that most of the sheep and hogs are retail investors/traders.  You will hear experienced traders talk a lot about the twin pillars of successful trading (which BTW means break even or better - i.e. as Warren Buffett said when asked the secret of investing, "don't lose money!"  Of course he lost over  a billion on Tesco soooo...) as being mastery of personal psychology and good risk management.  This includes avoiding the so called FOMO (Fear Of Missing Out) motivation, mastery of patience, finding a way of analysing the market and identifying triggers for moves (when to get in and when to get out safely and within a margin or error - i.e. not trying to catch the extremes) and so on and so on.  It is amazing how many people think they can just open an account and make money (I did too and lost a lot before learning, if indeed I have truly yet).  You never stop learning (if you think you have and know it all you are about to lose again...).  No one has all the answers so seek as much input as you can handle and reasonably assimilate: hear from recognised market players, read books, join forums and get involved in discussions.  In the end you have to make up your own mind about a trade, if you seek tips or to follow a self proclaimed guru then you are asking for trouble.

 

With respect to one point above (trying to catch the extremes) and to your point about stock indices just now, I tend to agree it is likely to be just a retrace that will then lead to a strong exhaustion rally.  However if the Fed et al do come out with QE4 and/or helicopter money (maybe those 2 will turn out to be the same thing...) then is the end in sight?  I don't know.  I think the trigger for the end will only become apparent after it has happened as will the end itself.  Safer to wait for a confirmed turn and then see about getting in on it but of course even that is hard...  There are other markets to trade.  FX is in a better place, once the GBP retrace is done at least.  USDJPY is interesting right now as is Gold and Silver.  When you are finding it hard to make sense of a particular market then stay out for a while and focus on other markets.

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