Ghosts of V - Shaped Recoveries
Markets moved substantially higher today after the Sunday rumors and new money programs were announced. It was your average panic buying party with about every single stock making large one day gains. After a steep drop what you want to see is firming action and basing, but the market never does what would be best. Another large gap opening just makes more of a mess of things to my eyes.
Robert Sinn has an excellent take on the wild day, and it's well worth a look:
The Low Volume Reset
The enormous macro uncertainty combined with the day to day market whipsaws have moved many investors/traders to the sidelines permanently. What will it take to bring them back into the gameRather than hash out the action today I wanted to touch on a subject I think is always in play inside the heads of market players.
"Got a lot of past, Joe. Things accumulate."
-Andrew Cord in Highlander episode "Brothers in Arms"
Faced with debt downgrades, a slowing global economy, persistent high unemployment, and maybe 3 or 4 other concerns one may wonder why buyers line up to plow into a rally at the drop of a hat. The answer lies in the past. I think the ghosts of the past two V-shaped recoveries linger in the psyche of us all. The March 2009 ignition of a monster rally and August's 2010 blow away bottom cannot be forgotten. Chart form (weekly chart):
I believe that people can be haunted by memories, both good and bad. I know the V move is something I think about all the time. I cannot be the only one.
At a time when intervention by higher powers (not the spiritual kind!) is all but a sure thing, no one wants to miss the train when it's leaving the stimulus station. It can be very difficult to board later on after a longer run than you thought possible.
This also explains the market dynamic of everything goes up, or everything goes down. When things get going it's not going to matter too much what you have, but it will matter if you don't have anything. It's a nasty part of the market but I think it foolish to not acknowledge it.
How much do ghosts of V-Shaped recoveries factor into your thinking?
Have a good night.