Sideways (& under arms?)

I’ve been ignoring the US stock markets for a while.

The rally from below 700 back in March hasn’t made much sense to me. As far i can tell it hasn’t been based on any real improvement in the underlying economic situation. In fact, it’s run so counter to what i’d expect, that i’m left looking for alternative explanations.

My chart reading foo is basically weak, but that plateau from May until now doesn’t look positive. Many of the daytraders, on blogs such as Zero Hedge, have been bemoaning the blatant manipulation over the last month or longer.

Given the US Treasury’s need to shift huge amounts of bonds (via the primary dealers), and the relationship between the stock and bond markets, one would expect the market to be manipulated lower (or sideways?) when large amounts of bonds need to be sold. I say “sideways” because a falling stock market might release capital that seeks safety in bonds, but it also generates fear which tends to push the yield higher. Which, consequently, suggests a balance needs to be struck been fear and confidence!

The June quarter end is also a time of reckoning for mutual / investment / hedge funds. Statements have to issues, positions elucidated, returns stated, etc. There is a lot of ‘window dressing’ going on in order to create the correct reality for investors and employers. The performance / success of a fund dictates bonuses, etc.

All of which probably adds to the expectation that not very much is going to happen until the end of the month. After that… i’d suspect that things are going to head back down.

All seems a little sick to me: the bankers are manufacturing reality to maintain their personal positions, meanwhile, out in the real world, house prices are still falling (remember where this all started…), bankruptcies are at record levels, unemployment continues to rise, world trade volumes are off ~10% qoq, credit markets are still effectively fucked… does that sound like that kind of background against which a 20% rally in equities can be sustained?

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Wise words...

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