Jesse Livermore, a tragic hero of the trading world, never used the terms “bull” or “bear” because he felt they forced a mind-set that he believed made a trader less flexible, in essence less willing to admit being wrong. He used the term “line of least resistance” which he succinctly stated as, “… there is only one side to the stock market; and it is not the bull side or the bear side, but the right side.” The right side will follow the path of least resistance.
French headlines, earnings (a whole lot this week), a full bank of economic data points, IMF and EBB announcements are on deck… it spells uncertainty and volatility, as in up one day, down the next. We probably will start back with morning gap up gap down behavior since the headline de jour will be the driver.
France heads to the polls. French headlines and outcomes will be reflected in the trading of the Euro, in turn the market should take its cue from it as well. We know French politics and business don’t mix as France may challenge austerity with shift to left leaning policies.
We know the IMF doubled their lending power by wining $430B boost to their coffers, a somewhat positive development.
With Jesse Livermore in mind, which do I think the path of least resistance is as I try to avoid a mind-set? Sideways to down and that includes the technical bearish flags showing themselves on the index charts. Yet, market action has to show itself to that weak side to get aggressive on the short side.
A heavy week for the calendar opens quietly. Wednesday is arguably the most significant as “Bernanke-speak” and Fed thinking is revealed. Tuesday’s New Home Sales and Thursday’s Jobless Claims will jiggle the market as well. Finally, Friday’s GDP number will tell all. Hint: for the bigger picture pay attention to any announcements revision numbers as revised numbers make for a clearer picture of trend. Recall that our data points are somewhat fractured, mixed, and leaning to fraying at the edges of economic strength.
Whether you and I believe the numbers or not really doesn’t matter. The market moves on these data points according to perception. That’s all we need to know as traders.
Failure by Bernanke to mention QE3 on Wednesday may dampen bullish hopes in that regard but I’d never presume to know what the Fed might do, having been proven wrong in the past. There’s a reason we are told to not “fight the Fed.” Yet, how they can put QE3 back on the table in the midst of potential political change in Europe that could change things in ways not imagined.
Short term traders will trade what the market gives them. Swing traders and certainly investors need a clearer view of things… right now, the market waters are pretty murky and probably will continue until May 6th with the French AND Greek elections. Let’s not forget, these are elections… politicians don’t get elected by taking things away from voters but quite the opposite. Not only that, if somehow the markets conclude that these changes (assuming they do change) would be a plus for growth in Greece and France, well, the market should ________ (Fill in the blank because the market is not rationale).
The definition of murky waters: a. Heavy and thick with smoke, mist, or fog; hazy. b. Darkened or clouded with sediment. c. Lacking clarity or distinctness; cloudy or obscure. In mathematical terms, a+b+c = uncertainty.
Uncertainty for the markets generally means downside, a.k.a., the path of least resistance, and considering the massive crosscurrents only a strong ray of sunlight (QE3 here and abroad?) might save the day. That “sunlight” would glisten off of gold.
Still, after all that negativity, the market climbs a wall of worry as we know. We also know the printing presses have pushed everyone into the risk trade. That has not changed. When this market finds a bottom to this selloff within murky waters stocks will still be the only game in town for return… provided one will take the risk.
wallstreetpirate
Wall Street Pirate and WallStWise.com 