There’s some mixed reaction out there to the EU deal and it’s not hard to see why. Traders, funds and quite a few pi’s have been caught short or flat footed by the recent stock market rally leaving some less than happy.
The fact is – there is no golden wand. No easy cure to the EU issues – so why on earth would any investor worth their salt believe anything ‘final’ was ever going to arrive. It was never going to happen. What the markets wanted was a clear plan. Toys were thrown out of prams in August purely because the Market felt the politicians were not taking the situation seriously.
Now, the market gets what it has always wanted – but leaves a bucket load of cautious investors stuck in the middle of being in cash and sidelined. What a dilemma!? Do you jump back in or wait for a pullback? What if the market continues to run away? Decisions decisions!
The DOW’s move from 10400 levels to test 12200 today has been swift. As highlighted on thesharehub a while ago – the recovery often takes just a few weeks vs the correction phase which is like a painful slow death over many months.
Long term investors who take the Buffet view – will be most satisfied as share prices recover. In fact, Buffet himself was buying up his own stock a few months back which suggests he’s still got that magic foresight tucked away in there.
There are not many wanting to predict where this market can go at present as most are still not ‘long enough’ as the article below suggests. The media seem almost reluctant to welcome the deal fully. In a few weeks time, they might realise that it was much much better than they could have hoped for.
The FED meet next tuesday (1st and 2nd nov) to decide on economic measures – should they launch anything like a QE3 move, then I personally see no obstacles for a market rally that could see the DOW breach 13000.
Perfect timing for the city’s xmas bonuses. You couldn’t write this script for 2011 if you tried – but it’s beginning to get predictable and the markets like that a lot.
By Jeff Macke | Breakout – 2 hours 37 minutes ago
Stocks around the world are exploding higher on Thursday after Eurozone officials announced a deal they hope will forestall, if not prevent, a financial meltdown in Greece from spreading throughout Europe and perhaps infecting economies around the world.
To say the deal has its detractors would be a wild understatement. Among these critics is my Breakout co-host Matt Nesto who rose out of bed like a congested Bernard King to share his doubts. Nesto dismisses todays global rally in three words: “Knee jerk reaction.
” He supports his view by citing Doug Kass contention that Europe needed a “shock and awe.
” Nesto tells me the deal announced this morning is neither shocking nor awesome.
“What weve done is send a bunch of banks in Europe out panhandling, cup in hand, looking to shore up their capital ratios,” he tells me. The deal does much the same thing to European officials who now turn to China and Japan to increase the European Financial Stability Facility EFSF to the $1.4 trillion level they believe is needed to calm markets.
Overall the deal is short-term and largely unfair, particularly to Greek bondholders who, Nesto notes, “cant even cash in on default insurance” because the 50% default has been labeled voluntary for official purposes.
I cant disagree much with any of the above points. Its just that they dont matter as far as stocks are concerned. The market is higher because of the simple existence of a deal, not the nuance. The irredeemably flawed Eurozone and its currency arent going to die for at least another year. The fact of the deal only delaying the inevitable amounts to an upside surprise and is more than enough to justify a rally.
Another bullish catalyst bears love to hate is the resumption of U.S. dollar weakness. It was just a week ago that we were bemoaning the dollar strength which was killing stocks and commodities. Since then the number of dollars it takes to buy a Euro has gone from 1.37 to 1.41; a huge move for currencies and a breakout from the 1.40 mark. The S&P has moved from 1,210 to 1,270. Correlation doesnt equate to causality, but take my word for it a weak dollar helps stocks even as it causes us international humiliation.
Perhaps most importantly, this move caught a huge number of traders either under-invested on the long-side or flat out short stocks. This rally is immolating shorts and enraging those on the sidelines. Even the bulls feel like they dont have enough stock in their portfolios. You can argue about the rally not making sense and being little more than a short-squeeze. Ill concede both points even as I defend the rally. When the Animal Spirits start running you either step aside, run along, or get destroyed.
For whatever its worth, and absolutely NOT as advice, Im already long stocks but not long enough.
I scalped a 1% trade on the S&P yesterday. I felt good about the move when I made it, yet have kicked myself over it for the last 5 hours. Im still long, I still like higher beta names and I still want to buy dips. The difference is now support is at 1,250 instead of 1,220. Im forcing myself to take some gains off the table as a matter of discipline, but I fully intend to reload on any pullback.
The bottom line: Stocks have broken out higher. Mr. Market cares not a whit how participants feel about it.