May 21, 2012 - G8 brings hope.

Over the weekend, the G8 meeting of world leaders occurred at Camp David. (Europe has gone into a double dip recession, according to the Economist magazine.) The key news from that meeting was that several European countries pressed the case for growth stimulus in Europe - with austerity still a priority for after growth rates are improved. Angela Merkel, the German Chancellor, made some conciliatory noises on the topic, but said nothing binding.

Apparently that was enough to satisfy traders at the London Exchange. I believe that investors everywhere were waiting for a strong positive signal from anywhere. European markets closed higher, and American markets continued with a moderately strong performance - not outstanding, but nice. [My second long position is a penny below purchase price.] It is presently 12:30am EST and the Australian $XAO is up by 1%. Barring bad news from somewhere, Tuesday should also be a positive trading day in American markets.

Why did this market upswing happen? Merkel was definitely opposed to committing to anything, so the "good" news was conditional. Many political positions are being clarified in advance of further high level meetings on Wednesday. Spain reports that it is anticipating a further contraction in its economy for the second quarter. That news alone bodes ill.

I'm sure that a majority of investors were waiting for some bright spot to purchase devalued stocks. 17 of 18 DJ US Sector stocks gained, with DJ US Basic Resources ending down a mere -0.28. There were even gains in most of the stocks which I had chosen for the specific purpose of shorting if the slide continued. A generally positive day, but the $VIX dropped about 3%. Therefore, trading volume was much less than Friday. I would expect an net increase in the Fear Index if the day's trading was bullish. Many investors are biding their time.

Non-Binding Prognosis: Negative.
Too much residual uncertainty. At the moment, everything depends on the performance of European markets, but I think that enough doubt and negative news exists to restrain market performance. It is possible for American markets to overcome European doubt, so it could still be a net positive day.

May 18, 2012 - Facebook

I entered into a long position at the start of the slide, and then optimistically took another one during the slide, when the market was looking deceptively flat. I felt the fundamentals were sound enough, and in the case of the second, it was a low-priced stock that should have a decent upside, which a moderate market upswing could provide. Possibly more later, but anyway...

Following the failure of Greek elected parties to form a government, new elections are needed in Greece. That does not imply that future elections will have better results. Over this time the European markets were consistently down at the end of their trading sessions, leading to enough uncertainty for the American markets to decline, leading to decline in the Asian markets. Even moderately good news didn't help much, but on the other hand, an awful Philly report on May 17th would have done more damage during a market upswing. At this point I expected more of the same slide. Enter Facebook.

People seem to quickly forget details of politics, but I think that the Facebook IPO will long be remembered for multiple reasons. The level of hype was impressive. Everyone had an opinion on it. Every channel mentioned it at least once, even though it wasn't really news. [Nowadays a news item is anything titillating, especially if there is good footage.] It does not matter here, but my opinion is that Facebook is not Google. What is important is that most investors were looking for a bright spot somewhere, some news or other market shock to break this slide of European doubt. Facebook was not it.

Facebook opened at $38 peaked in early trading, and then slumped to $38, closing at $38.05 or something similar (I can't seem to get the right number off the chart I'm looking at). It was hoped by many that the high expectations might broadly enhance trading throughout this Friday session, but the effect was strangely mixed, and unsatisfactory for traders hoping for a brighter market performance. Most interesting are the rumors (has this been confirmed?) that the FB IPO underwriters were buying up FB stocks with $38 limit orders to buoy the stock price. [I have to wonder at the legality of that, if it is true.] In Monday trading FB quickly drop to below $35 and stay there through the day, but I'm getting ahead of myself.

Plunge

First off, I need to recap where the market has been in the few weeks leading up to today. As I already know, Greece entered the European Union under false pretenses of fiscal solvency. They had used an enormous derivative as a multi-billion dollar loan to bring their current accounts into line with the EU requirements for membership. Greek governments probably took full advantage of EU membership for borrowing, leveraging, and investing, but it was all based on the lie of solvency. A large percentage of the population are thought to be evading taxes, and the government was lax on enforcement. A virtuous(?) new government discovered these fundamental flaws and disclosed them, but hard times had already fallen. Multiple loans, bond issuances, debt restructurings, and unpopular "austerity measures" later, a well-intentioned government fell to increasingly popular opposition. The resulting election favored many fringe groups that rejected austerity, despite the fact that Greek debt is approximately 159% of GDP. Beginning approximately May 2, 2012, the previously elected parties were brutally punished at the polls, and fringe groups who variously opposed austerity were elected. In several attempts at negotiation, these groups subsequently failed to find enough common ground to form a coalition government, and world markets began a marked decline that lasted through Friday, May 18, 2012.

Hi, my name is Karl, and I use the handle "KarlMonster" for a number of things. I began to use that when two different friends - who did not know each other - used that term to address me. I figured that they must know something that I didn't. ... Right?

I've spent some time trading currencies, and I've listened to a number of strategy sessions touting Fibonacci levels, support and resistance levels, trend lines, "head and shoulders" formations, etc, etc, etc. And I don't believe a word of it.

"This "head and shoulders" formation should lead us to look for a support level down here."

"OK... but what caused the "head and shoulders" to form?"

"What? Uh... well, changing market prices and resultant volatility for one."

"And bad news, like government policies, economic reports, and earning results."

"Well, yes, but..."

"What if the news was different? Then there wouldn't be this "head and shoulders" pattern, would there?"

Since I reject the value of such "indicators", I seek to understand the market through more rational means, such as observing geopolitical events, and recording them here for future reference by myself, and whomever else might be reading. Today's market performance was interesting enough to motivate this blog, and I want to record my observations while they are still fresh in my mind. Also because I need to offload the information to somewhere, much like my other writing. Much like my other offerings, this blog may suffer from limited updates depending on where my attention is at the time.