Search This Blog

Tuesday, June 7, 2011

Market Thought... top-down

There is no secret to this negativity. The market started stalling before earnings season. It did so because economic data was coming in lighter than expected.  But it rallied hard during earnings season because earnings were too strong to ignore.

The 'stalling-market-due-to-weaker-economic-data' is an example of the top-down analysis.  Economic data extrapolated to the equities market assuming a weak macro-economic picture means weak individual earnings.  But when the majority of the SP500 reported earnings, the earnings were simply kick-ass (some 66% beat). (Some beats were so severe the analyst got the estimates wrong by some 15-20%, ie AAPL.)  This is the bottom-up approach. Push comes to shove, equity markets are predicated on profits.

The reason the majority of SP500 companies beat, and are doing better than expected, is because the majority of SP500 companies are global enterprises exposed to the global-GDP, not just America's.  (FYI... Global GDP is projected to be 4.2% in 2011 and 4.6% in 2012 by the OECD.)

Regardless of the above sanity, the technical set ups are now causing the big-boys to act like chickens-without-heads, causing more negativity. (Uncertainty causes discounts, the big-boys are uncertain, so the market is discounted.)  The negativity, and technical supports, were highlighted in the 'summer of discontent' post. (I will refer to this post everyday if I have to :)

Basically, the current psychology of the market is held hostage to marco-economic data.  Because this is causing the top-down assumptions of negativity, I am paying close attention to every economic data point that comes my way.  I will be consistently posting my thoughts on them on tumblr. (link is here, and will always be at the top-right corner under LINKS titled 'shit happens')

Late day action was not encouraging today.  There is a high likely hood that the SP500 tests the 1250 support before August. (Especially when we factor in the uncertainty of the debt ceiling tit-for-tac. As congress and the senate play the game, 'who wants to be the asshole', 1250 seems like a foregone conclusion.)

A good idea maybe to hold SPY or QQQ protection throughout the summer months. (But I still think the declines will provide simply awesome buying opportunities. Especially since I think so many stocks are great opportunities now!)

No comments:

Post a Comment