Black Week (Mar 5 - 9)

Conclusion of Bernanke's Psychology = Inflation.

In his book, Ben Bernanke calls understanding the Depression 'the Holy Grail of macroeconomics.' Some conclusions he has drawn:


1. Beware of outdated orthodoxies such as the gold standard.


2. A stable banking/financial system is critical.


3. The Fed's key objective should be stable prices.


4. Don't try to prick asset bubbles.


5. An inflation target can defend against deflation and inflation.


And thats why we are seeing this happening in bonds and PIMCO buying TIPS.

 

i am a bear, but i think in short-term we are well oversold and a squeeze is coming before the next plunge. I am positioning to enter short-term long positions as volatility is too high and unsustainable on a relative basis (not absolute basis) http://lauristonletter.blogspot.com/

 

Support suddenly becomes resistance - that's trading 101 - and we calmly debate support and resistance on ET because its easy to do.

The one thing that I see missing in this discussion is the psychology of the markets breaching these support levels. The speed and violence of these recent downdrafts could be causing adverse psychological reactions in both retail and professional traders alike. What should be a much needed correction could turn into something far worse that feeds on itself.

The variable that makes me worry is that a whole generation of babyboomers is relying on their 401K and IRAs to live off of in the coming not-too-distant years. They could create panic selling and drive things even further - regardless of what the economy is doing or not. Its easy to say all is well - try telling that to people whose life savings is vanishing before their eyes. I don't think we are giving this enough credit in this discussion.

Does anyone think we could see panic selling by the babyboomer segment?

 

Yes.

And your sentiments echo mine almost exactly.

Psychological mood is always exaggerated on the up and down turns.

Demographically, there a lot of baby boomers, close to retirement, that have nice nest eggs they are relying on to get them through their golden years. A circular and vicious move down may rattle their confidence to the point where they wish to remove almost all risk out of their portfolio, until a clearer and more stable picture evolves, at the very least.

By shifting from, say, equities, and rebalancing into a heavily overweight position in fixed income instruments, any downward move is greatly exacerbated.

At a time when fixed income in paying 5% to 7%, a nasty downward correction in equities, of the kind we haven't seen in 4 or 5 years, is entirely plausible. And its root cause would be benign relative to the causes of other recent plunges.

They won't listen or care about historical lessons regarding equities outperforming bonds over the long term, because their time frames are too short to risk precipitous drops in equity markets - that they haven't a clue would take how long to recover from.

They won't care about economics 101, emerging markets, or the next great thing. They won't care about Siegel, Kudlow or goldilocks.

They'll just want to avoid losses, and avoid risk.

 

Just a reminder to all, you don't have to trade this environment if you don't feel comfortable with your analysis or don't know why things are happening. You can also reduce your size substantially if it feels like you mights be gambling more that trading. Use defined risk, hedge an index short with equities showing relative strength etc. Basically don't take a flyer and get hurt just because you are swept up by the volatility and because you want to be part of the excitment. Just thought I would throw that out there as the fever pitch rises.

 

http://www.elitetrader.com/vb/attachment.php?s=&postid=1379745

after we bounce we should head back down for the summer break.

 

March is an important quarter end and the bulls are trapped long and reluctant to sell unless they are forced out, and
additionally it is Fidelity’s big Magellan’s year end on March 31st I believe. Even so note that the ‘shock’ to the
system may take a month or two to clean up before a big advance is possible so strategy should emphasize
shorting weakness rather than buying strength. The other factor for March is the 7 year cycle from the year 2000
which had a big low on the first few days of March and then the biggest short squeeze in history straight up
through the March ‘Triple Witch’ expiration to the all time high on March 24th 2000. That pattern could yet
repeat if enough people buy puts for March. The key for this type of squeeze will be the Thursday S&P futures
roll out into the June contracts next week or about March 8th. A rally after that could last until March 23rd. One
other observation is the missing 4-year cycle low from last October. What if the four-year cycle actually moved
to 3/12/03 to 3/12/07? A 10% drop could be bullish on that thesis but I have real doubts at this point especially
since the Japanese “carry” trade is unwinding and Japan is repatriating assets out of the US back to Japan in the month of March which is their fiscal year end.

 

Aren't you forgettin somebody?

 

Yes. All those participating in Black Week should also stand in remembrance of Jackie Robinson. He was a simple man of great courage. Robinson was instrumental in bringing the values of minorities into our society - a benefit which is self-evident to this day.

 

1300 looks about right.