Psychology of a Market
Again we awake and ask ‘what a world we live in?’. That goes of course for our financial markets too. Let’s step through last night’s market action through the eyes of the world’s biggest sharemarket index the US’s S&P500 (courtesy of ZeroHedge).
We are so conditioned to terrorism that any immediate reaction is ordinarily bought as a dip opportunity (buy the dip). But what was interesting then is what the market did after US Fed president Charles Evans spoke. What did he say? Well fresh after the very Dovish meeting outcome last week, he went about jawboning the market that everything is fine…. “we expect 2016 growth will be 2 to 2.5% and I think the fundamentals are really quite good for the economy going forward.”… Hmmmm, so the market reacts to this by rallying? Oh no… as you can see above the market sells off. This can mean a couple of things. Firstly it’s the opposite of the usual ‘bad news is good news’ reaction in that if the Fed thinks things really are getting better then they may raise rates soon. That’s not great for the free money game so let’s get out of dodge now. Secondly it could be that yet again we have a market that is seeing straight through this central bank rubbish and is selling on the basis that for them to be coming out with this sort of announcement in the face of reality means they are getting quite desperate. So let’s see what “really quite good” looks like and then ask yourself how sustainable that green up arrow looks….