Wednesday, 2 September 2009

Waiting to clobber "good" news

For the second time in the last few days the S&P 500 spiked upwards on "good" news only to be confronted by an onslaught of selling. The bears are certainly waiting to pick the right moments to rain on the parade.
Whether this shift in sentiment will deliver on the much anticipated September correction remains to be seen and, in my opinion, will be much influenced by other inter-market forces such as the performance of the US dollar and crude.
However yesterday's selling was very persistent and had the flavor of not being dominated by the HFT operations that have been a new "feature" of trading during the summer months.
We need to find out if the HFT algorithmic bias can deal well with a market that seems to no longer rejoice on "good" news. Rather it may have to get used to interpreting information which seems to be conveying increasingly awkward ambiguities now facing large asset allocators;
1. The slump may be ending - but what if the recovery is more anemic than many are assuming?
3. The toxic assets are still sitting on balance sheets and some banks want to raise more funding
4. The Chinese economy may not be as robust as previously thought and there are concerns about domestic bubbles following a super stimulus in early 2009.
5. Will the new government in Japan have the same appetite for supporting the US dollar and Treasury market?
6. In more general terms, there is the so-called Fed exit strategy issue which also plays into the related question to #5 - when QE is phased out who will the be the principal participants at Treasury auctions?

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