It’s a thankless task to try trading when it seems that all of the relevant inputs are unscheduled exogenous shocks. But, as former trader ansd fund manager Rich Breslow notes, we often have no choice. The Bloomberg editor points out notably that the market reacts and only considers what it means afterward. When’s the next one that’ll set us off and running? We’ve learned that breaking headlines haven’t shown the courtesy of necessarily waiting for normal business hours. And unlike run-of-the mill economic news where there’s at least the possibility of some sort of dispassionate analysis, the news we’ve had this week comes laden with all sorts of preprogrammed baggage. To make matters worse, the market, even more than nature, abhors a vacuum. Trading a storyline with so many unknowns and so fraught with emotion, requires that new developments continually feed the beast. Or it bites back.
Markets can trend, range trade, and correct. But one thing they can’t do under the current scenario is time-correct. The minute they stop moving, a powerful, even if short-lived, impulse takes over to reevaluate, cherry-pick and average down. Even if you’re sure the story hasn’t run its course, it takes real moxie to remain exposed to the other side of trades you were very comfortably holding for the previous weeks and months.
We’re all leery of getting caught in over-crowded trades. Nothing feels more teeming than new trades predicated on emotion. Even if you feel very strongly about the subject. This is a be nimble, very nimble, environment when we’ve been rewarded time and again for buying and holding. Traders will need skills that have atrophied over years. Another reason we are years away from “normal.”
To further complicate things, while many believe that the latest information confirms what they suspected all along, the ultimate import isn’t at all clear. Other than that investors don’t like uncertainty.
Will the legislative agenda get bogged down? Maybe. But from what we’ve seen so far, some additional time to prepare viable proposals with actual details isn’t necessarily a bad thing. If the Senate uses the time to get some nominees approved so they can get on with running the government, we might in fact be better off.
The most important thing to watch if you are going to handicap how this all plays out is whether the Republican caucuses in the two houses of Congress stay unified or fracture. Mitch McConnell and Paul Ryan are every bit as vital to this story as is the special counsel. You’re highly unlikely to learn how this plays out before the end of today.
This is one of those rare days that most Fed members are thanking their lucky stars that they don’t have to speak. While I’m dying to know what they make of all this, I’m working under the assumption that their tune wouldn’t change. But the definition of data-dependent may be in flux.
One glimpse at this chart and we suspect Breslow is 100% correct...