Confusing markets: if the trend is your friend, what is the trend?
The Dow was down 279 points on Friday, and on Monday at midday it's up more than 200 points. Huh?
Here are three explanations I have heard for the market action in the last two days:
1) Stocks cannot stay down for long because there are no palatable alternatives.
2) Why were we down on Friday in the first place? Greece, China? China made it clear it's going to keep stimulating when it announced a cut in the reserve ratio.
3) We're actually not moving much at all, we have been stuck in a trading range all year, between roughly 2000 and 2120 on the S&P 500.
My point: if you're not a bit confused, you're not paying attention.
Take China. I've noted that Chinese monetary authorities have made it clear they are going to keep stimulating, but Chinese regulatory authorities seem afraid the stock market is in a bubble, and they ban margin financing in over-the-counter stocks. Confusion!
Or take Apple. Apple closed below its 200 day moving average on Friday, with lots of hand wringing. On Monday, it shoots the lights out, up 2.5 percent midday.
Then we have earnings. I've said several times that analysts appear to have "wet the bed" and reduced earnings estimates too aggressively. Now the numbers are coming in and many more are beating than usual.
What to do? For the moment, the best advice I am hearing is to sell rallies and buy declines, until the range breaks one way or another.