***Official*** 2018 Stock Market Thread

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FelixDeCat

Lifer
Aug 4, 2000
29,288
2,094
126
People trying to time the bottom.

If you read my earlier post I mentioned something like this happens during bear markets or even general market corrections.

This was called a "rip your face off" rally. Its great if you were long and waiting for some market confidence to lift your spirits but VERY bad when people who not only sold but got short near market "bottoms". I know people were probably writing call spreads shorting premium thinking the market was a dead duck this week. They were likely forced to cover which added fuel to the rally.


Im not sure where we go next, but in the next two weeks we will see the "January Effect".
 
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Engineer

Elite Member
Oct 9, 1999
39,234
701
126
As of now, Dow down about 380 but has been down by as much as 500+. Add Monday, Wednesday and today.....and we're basically break even for the week, which is actually pretty amazing considering the swings.
 

Engineer

Elite Member
Oct 9, 1999
39,234
701
126
Market popped at end of day to +260 (from -600). That's probably as good of sign that the market was oversold as I could possibly see, especially after yesterday's pretty high gains.
 

PlanetJosh

Golden Member
May 6, 2013
1,815
143
106
One and a half trading days left in the year. Not even a full two days to get near the what it was at the end of last year. Oh well maybe it'll stay above today's close by 12/31.
 

FelixDeCat

Lifer
Aug 4, 2000
29,288
2,094
126
That was some very fake buying during the very last hour of trading.

Its as if a group of buyers got together to support the market just as it was off 500 points in an effort to discourage short sellers from bringing the market back down from its 1000 point run up.

I never believed in the "plunge protection team" but I guess now that I have seen such a coordinated effort to put a floor on the market (for now), I guess they are trying to stop the bleeding.


It wont last.
 

ImpulsE69

Lifer
Jan 8, 2010
14,946
1,077
126
but why? It is either really bad timing, or genius. I can't decide which. I guess I'll know in 5 years.
 

Charmonium

Diamond Member
May 15, 2015
9,530
2,909
136
There seem to be a lot of concerns right now - China, tariffs, oil, yield curve, misc. tail risks, etc. But the fact of the matter is that consumer confidence is still high and that's about 2/3rds of the economy.

After the sugar high of last year's tax cuts, it was inevitable that there would be a hang over. Add to that what I think is some fairly aggressive tightening by the fed, which isn't unjustified given the state of the economy and things were bound to get rocky.

What concerns me is the fact that tax cuts should have had a longer effect than they did. Over the past 6 years the money multiplier has gradually been inching up but we're still no where near pre-2008 levels.

https://fred.stlouisfed.org/series/MULT

Personally, I think that needs to recover quite a bit before we have any real danger of inflation, but obviously the fed doesn't see it that way. Balance sheet normalization is on autopilot plus you have the Treasury issuing roughly 300-400B in new debt due to the tax cut. As long as that's the case the market is going to be governed primarily by liquidity issues.
 

jpiniero

Lifer
Oct 1, 2010
14,825
5,442
136
Isn't the Fed balance sheet normalization part of the reason they want to keep raising rates? Can't really normalize without raising rates...

Mortgage rates have fallen a bit, btw. Plus you can get an still decently long ARM in the 3's.
 

Charmonium

Diamond Member
May 15, 2015
9,530
2,909
136
Raising rates is like mainlining heroin. The effect is faster and more direct since short term market rates tend to follow the fed funds rate. Selling assets from the balance sheet is more like snorting heroin. The effect is much slower but it still gets you high. You're hitting interest rates from a supply-demand perspective. More supply depresses prices and raises rates.

None of this takes into account the term structure but that's a bit beyond my understanding of these things.

As for mortgages, those are long term loans and we have pretty flat yield curve right now. So the decrease might be due to expectations of an inverted yield curve or they might just be a reflection of market defensiveness - when people bail out of risk assets, they go to cash or debt. So a sudden demand for debt instruments would increase prices and tamp down rates.
 
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