“Today could very well be a short-term bottom but we’d be surprised if it were “the” bottom. Why? Japan, the 3rd largest economy in the world, is effectively paralyzed and the risks of contagion to an already fragile world economy, in our opinion, are not priced into the current market prices, off just over 1% from pre-Japan crisis. Nevertheless we’re not going to overthink this and as always, trade the charts. But it is something in the back of our head making us more conservative towards anticipatory breakouts and swings.”
And indeed, today two daytrade breakouts triggered and both worked for daytrades but would have failed as swings. Until the flow of news slows down this will be a daytrader market. As our readers know we love buying panic — but when we do it’s rarely when the market is reacting to real-time geopolitical events/natural disasters (and most panic moves down aren’t — usually it’s a follow up of an event that already happened, a cascading of fear versus a real-time reaction). And on the rare occasions when we do get involved on reaction to real-time news, (we were buying the panic on the BP disaster), it’s when the event is more finite and contained. Macondo could have gotten worse but it never was on the same level as what is happening now in Japan. We don’t know how the situation will develop and what the fallout will be, but we won’t be involved until the possiblity of a full blown core meltdown is off the table or at least we see a real crash (down 2% not good enough for us to put on the risk, $ES_F 1224 would probably tempt us though as that would be flash crashy). In sum, for us it has been more profitable to buy panic when the news is already in and we’re only dealing with investor psychology than when the market is fluctuating based on real-time news.
