Obama Attack on Capitalism Root of Market Trouble

Jeff  Carter
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Posted: Aug 20, 2011 12:01 AM

It seems ever week these days is becoming more and more tumultuous. When you have a lot of gray hair mixed with no hair like I do you don’t trade as much on Friday afternoons. Europe is closed, Asia is long closed and half in the bag at a KTV lounge and the market action here is sloppy.

The action today reminds me of a different market and a different time. Late 1999 in reverse. I remember on Fridays back then you could count on the market selling off a little. No one wanted to be long over the week end in case the market had a change of heart. The Street knew that the NASDAQ was overbought. Skateboard.com raising millions of dollars told you that. But, you had to be invested because the momentum up was so strong.

I remember standing in the hog pit in 2002, an old trader said to me “if you had simply bought the close on Friday and sold the open on Monday” for an entire year, you’d have made money trading one lots in the S&P ($ES_F). Conversely he said, “You could have made boat loads of money” buying the open on Monday and selling on Friday without riding a position over the week end. The market was just that strong on the rally.

This market is the reverse. Friday tends to have short covering rallies. No one wants the risk of holding the short over the week end. They are afraid what a central bank might do, or a government might do to stem the market decline. But, if you sell it on Sunday night when Asia opens, and buy it on Friday afternoon when America closes, you have been able to deposit a lot of money in your bank account.

the start of major declines

7/25-7/29 -4.5

the next week

8/1-8-5 -8.7

made some of your dough back

8/8-8/12 +5.86

Then this week a return to trend

8/15-8/19 -6.75

Last 30 days
AMEX SPIDER Options Chart

AMEX SPIDER Options Chart by YCharts

Market psychology sometimes is everything. The current psychological profile is decidedly bearish. When markets choose to do something, the default move is always with the psychological/momentum. I still remember when terrorists bombed the USS Cole and I was short the NASDAQ ($QQQ, $NDQ). The market rallied big before it realized what happened and broke. News driven events in this market are more likely to cause it to fall first, and then if it’s truly bad news follow through. It doesn’t matter what the news is.

There is so much negative sentiment flowing, it’s hard to break. Much of this stems from Presidential statements leading up to the budget resolution, but a lot of it comes from the evidence that the economy in the world pretty much stinks right now. A lot of that stems from the President too.

You can certainly blame some of this on Europe, but the lack of confidence at home keeps buyers in their foxholes. Capitalism has been under severe attack and eventually even the most hardened optimist gives up. I suspect buyers stay hidden until something gives them a real good reason to emerge. Every time they have come out, they have been slaughtered.

John Ransom | Create Your Badge

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