I’ve used this analogy before, but on days like today, one can’t help but feel like investors are nothing more than Pavlov’s dogs, salivating for the inevitable treat they’ve been conditioned to expect. As for Pavlov, he is of course played by Fed Chairman Jerome Powell, also known as the Wizard of Oz.
Article Category: Gold
It is with great pleasure that I welcome you to the first edition of Sigma Point Capital’s Market Analysis – written by yours truly, Matt Kerkhoff. It’s going to take a week or two for us to get up to speed, and I wanted to begin by setting the stage in terms of what to expect here moving forward.
Back in early February, in the midst of the most vicious selloff we've seen in years, I showed the chart below and made the case that we were seeing a "minor blow-off top in the context of a continuing primary bull market." Today I'd like to update you on that view.
My February comments were based on two main factors: we had just experienced a two-month long explosive momentum-based rally, and the economy remained on steady footing. The combination of these factors left me with the impression that stocks would eventually work themselves higher, but it would take a while. I did not, however, expect it to take quite this long...
China and the U.S. slapped $34 billion worth of levies on each other's exports last Friday, and today the markets said, "yeah, whatever," and marched higher. The questions is, why?
Market moves often baffle investors, but this one shouldn't. Fundamentals are strong, corporate profits appear to be rising nicely, the trade skirmish represents a tiny portion of overall GDP, and stocks have been punished for six-months straight. Add to that small incidentals such as the market's P/E falling by about two handles, as well as these tariffs already being priced in, and you have the recipe for a nice rally.
Dow Theory considers daily action in the stock market to be nothing more than noise, and that presupposition may be gaining in importance. I've been hanging on to the chart below, waiting for an opportune time to present it, and I think that time is now.
This chart, using data from Aite Group and Goldman Sachs, claims to show the share of trading that is done by algorithms. As you can see, the majority of equity market trades (around 65%) are executed by computers based on preset logic.