...One of my mentors, and one of the sharpest traders I ever met, had the most common flaw of students of markets, hubris. In his case it was non-fatal, more of a cost of doing business:As today's Abreast of the Market column points out:
...2) He got into a rigged blackjack game in Yugoslavia. Lost half-a-mil. Said he started to think it was was fixed when he was down a couple hundred.
Wife: "Then why the hell did you keep playing?"
Him: "I thought I could beat it".
Dow's Doubters Say Market Is on Borrowed Time
As U.S. stocks notched their seventh winning week in a row on Friday, unease was growing among some investors and analysts who study the market's patterns to predict where it is going next.
The Standard & Poor's 500-stock index hasn't seen such a long stretch of weekly gains in nearly four years. For the Dow Jones Industrial Average, it has been nine months. The latest leg of the rally has vaulted the S&P 500 8.7% higher, while the Dow is just 213 points below 12000—and up 78% from its financial-crisis low in March 2009...Got that? "Mysterious force".
...The market is rallying "as if propelled by some mysterious force," says Mark Arbeter, the lead technical analyst for Standard & Poor's, who reckons the market is showing signs of fatigue for the first time in nine months. A stumble could claw back about half of the S&P 500's four-month, 23% rally, he says....
One widely circulated observation last week noted that the S&P 500 hasn't closed below its 10-day moving average in more than 30 trading sessions. The moving average softens out volatile daily market movements and is used by analysts and strategists to judge momentum and emerging trends.
Chris Verrone, head of technical analysis at Strategas Research Partners, counts only about a dozen similar instances in the past six decades. The most recent until now: a 42-session streak that ended with the Greek debt crisis last April. The S&P 500 then slid 8.8% in just two weeks....MORE
Here's DealJournal's Mean Street column (a Dow Jones property):
Mean Street: Beware the Coming End of QE2
If you’re thinking of buying a bond anytime in the next few months, you better think twice. Or maybe three times.Most of the proceeds the primary dealers receive from the Fed for the QE2 purchases are going back into frontrunning the Fed (see "Is QE2 A Stealthy $90 Billion Gifting Scheme To The Primary Dealers?" (BAC; C; GS; MS; JPM; HSB; UBS)) quite a bit is also going toward levitating the AAPL's of this market.
At the very least, you ought to read Graham Bowley’s piece, “The Fed’s QE2 Traders Buying Bonds by the Billions” in yesterday’s New York Times.
It neatly lays out how the Federal Reserve is manipulating the U.S. bond market by intentionally bidding up prices on billions of dollars of U.S. Treasury securities.
Bowley’s article isn’t a surprise scoop, unveiling a sinister Trilateralist conspiracy. For months, the Fed has been pretty transparent about the intentions and mechanics of its targeted $600 billion bond buying program (a.k.a QE2).
Still, it’s a bit shocking to read the day-to-day details of how a handful of twenty-something Fed traders overpay for Treasurys, padding Wall Street’s profits along the way.
“They have their work cut out,” Bowley notes, “trying to outwit the 18 investment firms that deal directly with the Fed. These so-called primary dealers – the Goldmans and Morgans of the world – employ some of the sharpest minds on Wall Street.”
How the Fed can “outwit” sellers who know the Fed will end up buying in bulk is a mystery to me.
But my point isn’t to get you into a Ron Paulian anti-Bernanke, anti-Wall Street lather. I happen to believe the Fed’s QE2 program is the right thing for the economy.
Rather, reading Bowley’s article should prod you to remember something you may have forgotten: Today’s hyper-manipulated bond market also happens to be temporary…as in…soon to go bye-bye. By June, the Fed will quit QE2, this false market will get very real, and owning bonds may get very painful....MORE
What I'm saying is: the dance will go on for a while longer but you may want to show off your sweet moves a little closer to the fire door.