Most of you are aware (or at least will be now) that we have a new website currently under development. As we move forward one of our goals is to make Dow Theory Letters a major resource for all investors looking to improve their investing IQ. Part of this initiative will include the construction of a massive "Investor Education" section which in many ways, we hope, will be equivalent to a Wikipedia for investing. If you haven't noticed, my remarks typically consist of an "educational" component followed by a few market comments. These educational pieces are being written to slowly build out content for the education section of our new website. All that to say, if you find the information too technical or uninteresting, feel free (I'm sure you already do) to skip down to where the market comments begin. These educational pieces will be housed in our new website, and categorized accordingly, for your reference anytime you need them or are in the mood to enhance your game.
Article Category: Psychology
The downside bias remains strong and the mood of the market has noticeably changed. Nearly all support levels that were outlined on Friday have been violated, indicating a high probability of further short-term declines.
A concept often studied in psychology, and applicable to the markets, is the idea of self-fulfilling prophecies. This refers to a prediction that either directly or indirectly comes true as a result of a positive feedback loop between belief and behavior. It boils down to someone believing in an outcome to the extent that their behavior actually causes that outcome to manifest.
Worried about China dumping US Treasuries?
Recent data from the Treasury Department shows that China bought more US Treasury debt in October than any other foreign country. The increase of $10.7 billion was comprised mostly of short-term Treasury bills, which shows that China is very alert to the looming interest rate risk. The price of short-term bonds does not swing as wildly as those of long-term bonds when market interest rates change.
A budget deal has potentially been reached by House and Senate negotiators. This was rumored to be in the mix over the past couple weeks. The market response so far has been mixed. Some are seeing this as a relief, since it should prevent another government shutdown. Others are less than thrilled because the issue of raising the debt ceiling will still require attention in February or March of next year. The deal will go to the House and Senate for approval tomorrow.
As of yesterday, we've had five straight down days in the Dow. I laid out a number of reasons for this weakness in Wednesday's remarks, the most current being implications about Friday's jobs report. Lately a lot of media attention has been given to the possible existence of errors and manipulation in the Bureau of Labor Statistics reports. While I can't speak to that, I will say that markets trade on expectations, and Friday's report will continue to have a large impact on those expectations.