I always tried to turn every disaster into an opportunity.
--John D. Rockefeller
After a parabolic run to start the new year we finally have a news event that is causing a negative market reaction. The big news is that China may be considering cutting back its buying of U. S Treasuries. With the Fed already starting to unwind its binge of buying the pressure on bonds has grown to a point that the Bond King, Bill Gross, is proclaiming a bear market for bonds.
For many years the bears have anticipated that the market top would occur when many years and trillions of dollars of 'stimulus' started to unwind. The bears timing has been extremely poor but the action today is causing some excitement for the pessimists. This is the scenario that has been predicted for a very long time. Will it now gain traction?
While there is some anxiety in the air this morning the bears still face a significant hurdle in the form of the market structure. This market has been impervious to news flow for a very long time as the computer algorithms and aggressive short term players have found that buying the dip, no matter what, is the way to go.
Fear has not been an emotion that has been an issue for this market. If anything it has simply created opportunities for bulls that refuse to be shaken out.
Will this news today be a significant turning point? It is possible, but I doubt it. It actually is a positive that the frenzy of the first six trading days comes to an end. Many stocks are technically extended and need to reset. As I discussed yesterday the best thing that could happen is that the market consolidate as we head into earning season in the next few weeks.
One thing to watch for this morning is how the action is likely to be index driven rather than individual stock driven. Big players deal with this shift but playing the indices. The smaller stocks that have provided some great speculative trading are not going to be strongly correlated with the indices but may still suffer some loss of momentum.
Speaking of speculative trading, I discussed the recent trading in cryptocurrencies and blockchain with Bloomberg recently.
I'm excited about some downside volatility for a change. It may cause some short term pain but it is what's needed for a healthy trading environment.
