Items Overbought and the Drama of Stock Prices
We begin this short week after the President's Day holiday, following a week of price swings bordering on hysteria. Stocks plummeted day after day until Friday; Treasuries, the darling of 2016 so far, more or less continued their rise until Friday; gold, the new kid on the block, finally fell back on Friday, falling even more drastically yesterday. (While U.S. stock and bond markets were closed for President's Day, gold - that most international and universal asset - continued trading.)
To bring us now up to speed as the action picks up today, treasuries and gold are overbought, and have been for a while. The question: Will they come back to earth now, or remain overbought? If you've not put either of these in your portfolio, to do so now, even with the small corrections we've seen, would be to buy when both hover significantly over their various moving averages. Not that there's any guarantee of a continued correction, but the odds would stack up in that direction.
Stocks prices, while continuing to cause pain and suffering to those who adamantly hold large positions come what may, did cause a bit of drama last week that mostly escaped the attention of the various pooh-bahs who opine constantly on market prices: what went up or down and why. For those interested in something of substance rather than the latest riff of "stocks rose on oil bounce," followed by "stocks fell on oil collapse," we offer this observation:
On February 11th, the price of the Dow Jones Industrials, like a submarine probing the dark ocean depths, sank to within a hair's breath of its August 25th low of 15,666.44. Last week, we who follow such things wondered if it would breach that low. On February 11th it did, sinking to 15,660.18. Now one day's signal does not necessarily a new leg down make. And indeed, the very next day, Friday, we saw stocks bounce violently off that newly-breached low. And so stocks provide the drama of the moment, as they usually do, for those looking for drama in financial assets.
Of course, the mere movement of prices, while for some providing the sort of entertainment that others find in reality TV shows, does tell a story of sorts to which we might pay some attention. The fact remains that having breached its low, we can typically look for a new leg down in this general downward spiral in stock prices that began with the New Year. Is that what awaits us now? Well, the way things have been, we simply must keep our eyes on these bouncing balls, following particularly stock prices to see if this bounce off a new low continues. If not, it was merely the result of algos briefly responding to the new lows to shave some profits off the top to keep their party going. At that point, we should see the next leg down in this (now increasingly apparent to more observers) bear market in stocks.
So there you have it: Treasuries and gold too high, stock too low (maybe). With that, the new week begins.
To bring us now up to speed as the action picks up today, treasuries and gold are overbought, and have been for a while. The question: Will they come back to earth now, or remain overbought? If you've not put either of these in your portfolio, to do so now, even with the small corrections we've seen, would be to buy when both hover significantly over their various moving averages. Not that there's any guarantee of a continued correction, but the odds would stack up in that direction.
Stocks prices, while continuing to cause pain and suffering to those who adamantly hold large positions come what may, did cause a bit of drama last week that mostly escaped the attention of the various pooh-bahs who opine constantly on market prices: what went up or down and why. For those interested in something of substance rather than the latest riff of "stocks rose on oil bounce," followed by "stocks fell on oil collapse," we offer this observation:
On February 11th, the price of the Dow Jones Industrials, like a submarine probing the dark ocean depths, sank to within a hair's breath of its August 25th low of 15,666.44. Last week, we who follow such things wondered if it would breach that low. On February 11th it did, sinking to 15,660.18. Now one day's signal does not necessarily a new leg down make. And indeed, the very next day, Friday, we saw stocks bounce violently off that newly-breached low. And so stocks provide the drama of the moment, as they usually do, for those looking for drama in financial assets.
Of course, the mere movement of prices, while for some providing the sort of entertainment that others find in reality TV shows, does tell a story of sorts to which we might pay some attention. The fact remains that having breached its low, we can typically look for a new leg down in this general downward spiral in stock prices that began with the New Year. Is that what awaits us now? Well, the way things have been, we simply must keep our eyes on these bouncing balls, following particularly stock prices to see if this bounce off a new low continues. If not, it was merely the result of algos briefly responding to the new lows to shave some profits off the top to keep their party going. At that point, we should see the next leg down in this (now increasingly apparent to more observers) bear market in stocks.
So there you have it: Treasuries and gold too high, stock too low (maybe). With that, the new week begins.
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