After yesterday’s panic bid in growth stocks – sending Nasdaq to record highs – it is clear, as former fund manager Richard Breslow points out, “I could feel the fear of ‘missing it’…” However, as Breslow points out, “what we think we knew about the new year was already priced in…and may or may not have lasting value in guiding us going forward.”
Via Bloomberg,
Traders quite reasonably think that the end of a year is the time for introspection and game-planning for what lies ahead. And while it’s a natural inclination, it is also misguided. Far better to spend the time reflecting on the reasons for past victories and failures. What we think we knew about the new year was already priced in. And may or may not have lasting value in guiding us going forward.
We all know the saying about past results. It’s also true about previous market conditions. This is now the now, and you have to get a handle on what current market dynamics should inform your trading. More of the same or a whole new ballgame? But January, or more typically late Januaries, tend to want to show their own personalities, irrespective of what went before. And can be very unforgiving to how they treat trades that have been accumulated based on what came before.
Going through this exercise is especially important because identifying potential turns in market conditions and direction may be the last situation where human risk takers can get a jump on models and algorithms. Don’t squander the opportunity.
When trading kicked off on Tuesday, you heard a lot of talk about the big moves that were sure to come. Yields jumped. The dollar slid. Emerging markets leapt higher. You would have assumed, given the price action, that last weekend marked a magical transition from manipulated and distorted markets back to sensible, good old fashioned normal ones where trading for break-outs would be the ticket.
Look at a chart of EUR/USD or 10-year Treasuries before concluding you know everything about how this year will play out. Then decide if you want to add to positions at recent extremes.
It’s an important decision. Especially as early trading seems heavily influenced by analysts telling us that it all looks like nothing but clear skies ahead.
I could feel the fear of “missing it.” And this, not only on the very first trading day of what will be a long year, but with Japan still on holiday and MiFID II not yet rolled out. Which is why it’s a very valuable object lesson to consider where you could transact business this morning. The dollar is higher, yields lower and EM resting. And this despite some additional decent numbers and ECB Board members talking tough.
Crucially, however, Breslow concludes with a key insight that few seem to consider – the counter-cyclical tendencies of The Fed now as valuations become more and more stretched and financial conditions more and more easy…
One last thought as we await the FOMC minutes. Given the changes on tap to the Committee it is very much stale news. But one thing that hasn’t changed is that if the market takes whatever is said as dovish, the price action will only increase the odds of more hikes to come.
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