OK, we now know that the President, the Congress, and the Fed are acting, and if things get worse, will act in an even more aggressive manner. What's next?
Here are the facts:
1) We are heading toward the end of the year, and traders are now trying to figure out how to insure profits.
2) But first, September is a seasonally weak month with a lot of potential volatility.
So the first thing to do is, be nimble, be careful, don't back up the truck, but work under the understanding that the Big Three (Congress, the President and the Fed) are watching. That's a big comfort.
With that in mind, here's the roadmap:
1) Fund managers have to buy something. If you believe that the Big Three are not going to let the world collapse in September, you need to position your portfolio for the seasonally stronger October-December period. This really is all traders care about—but you have to make certain assumptions in order to navigate past the opacity of September.
There are parts of the market where stocks are acting well: energy, tech among several sectors. Many companies have strong balance sheets--which, in a time like this, is exactly what traders are looking for. And they will NOT be painting the entire market with the same brush. As one trader said to me, "Rimm is not Capital One! Fluor is not Capital One! GE and Schlumberger are not..."
2) Shorts are bitterly complaining: "they're changing the rules to save the system!" There is some truth in that. But why is anyone surprised? We are going into a presidential election, and you think everyone is going to sit around and spout laissez-faire economic theories? What it means is a lot of hand wringing from my friends on the short side--and, for the moment, a lot of short covering.
But don’t get too excited—look at the charts. The Dow and all the major indices are FLAT this week. No one has broken out the champagne bottles, nor should they.
Still, this has been the most important last week in August in my eleven years at the NYSE. We have a much clearer idea of the intentions of key government officials.
Questions? Comments? firstname.lastname@example.org