Yeah that QTR A down is a good level to watch. It seems to be the best downside target for corrections.
Some tech names got lit up today. Overall market was pretty orderly but some of the high beta shit really got smacked good.
there is a great paper from Bridgewater Dalio's firm about hedge funds and beta you have to go to their site to get it. Would post it but don't want to risk being sued by a firm that's got over 100 billion. Anything from them is worth checking out though. title is "Hedge fund returns dominated by beta"
A higher interest rate changes all the discount factors in every asset. That's one issue. Two, higher interest rates means the Fed is "pulling" liquidity from the market vs providing it. Liquidity lowers the discount rate in time making risk assets "appear" cheap. Pulling it has the opposite effect. With less liquidity the cost of transacting goes up which means less trading, more gaps, less follow through, and more whip in price action. This can be very frustrating for traders. Remember, when the Fed is "lowering" rates they are providing liquidity to the money markets. By money markets I mean Fed funds, the discount window and the overnight repo markets. The "money" markets are the grease that make trading happen. They also provide the leverage. Banks and prop houses "borrow" in the short term money markets to make spec trades further out in time. In other words, they are driving price action. When you reduce this, you have less money creating trends in time. Also, the marginal speculator becomes more discriminant about price and trade selection. To trade, his economic cost increase and he has less liquidity to work with. The game completely changes.
Good stuff King. He actually goes over discount factors in his paper. Mav and Ray think along the same lines.
Monthly chart of SPY. Couple of comments here. We are flat on the year here. Remember what I've always said here, there are two ways the market can correct: in price or in time. The "time" correction has basically been all of 2015. We've been rallying smoothly for 6 years with hardly a pullback. This entire year could in fact represent a time correction or consolidation before the next leg up. If we correct in price, one thing sticks out from looking at that chart.....we have a loooooong way to fall. So if you believe we are in a time correction, we might bounce off this QTR level and keep trading sideways in a big range. But if you believe we will correct in price, based on the length of this move from the lows and the time, this pullback could go much much lower. It's your call home gamers....