Friday, August 21, 2015

Dreadful market, and no direction known at the moment

This post will take the risk of commenting on this equity market today before it closes.  One would think that trading is already just about over on a Friday afternoon in August, but actually that means less liquidity, aka light volume, and the remaining traders at their desks could drag this market anywhere, and meaningfully, if they have the will to do so.

Speaking about liquidity, that has been a big deal in the last two days.  With the two day extreme sell-off in the most visible and popular momentum names in tech --- see Netflix, Apple, and Facebook ---  it seems clear that we have reached a point in the recent downturn where some investors and traders are scrambling to cover margin calls.  That means they are in a position of selling parts of positions that are profitable overall but that can be sold to raise cash.  Valuation or long term potential or competitive positions have no place in this type of selling, which has its own momentum.

We know that concerns about China, the steady and not so steady, meaning destabilizing, decline in oil prices, and concerns about the potential for global growth prospects or lack thereof  are the primary causes for the downturn in recent weeks.  Significant turmoil in emerging market economic conditions and currencies is not helpful at all.  For two cents worth of additional comment it is suggested here that the possible collapse of the Iran deal and the emergence of the unpredictable and unattractive Donald Trump as a supposed legitimate contender for President of this country with the largest and most diverse transparent financial markets on earth are causes for serious concern here and more so in global markets.

Even for investors with a long term view this is not yet a market for trading, as there is no way to predict where this is going in the near term.  Batten down the hatches.  Be ready someday.


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