Is It Time to Buy or Sell?

Shift F9.

Well, what can you say? Tuesday was a "sell everything" day.....at least until that list included oil....after which it became a "buy everything" day. That is, until there were 45 minutes left in Tuesday's US equity session, at which point it became a "sell everything" day again. Fun for the whole family!

As observed a few times over the last week or so, Macro Man has found trading conditions evolve from pretty relaxing to downright terrifying at times. He's found it pretty easy to second guess every trading decision he makes, often after only a few minutes. That's an urge that he is trying to fight; in all conditions, but particularly when it gets a touch difficult, it's important to look forward rather than back.

In any event, it doesn't take much digging to confirm that conditions have been tricky, and that Macro Man hasn't dropped 50 points of trading IQ since the 4th of July. Consider that over the past 10 trading days, a period in which the SPX has dropped 5.1%, no less than seven of those days have witnessed an intraday rally of at least 1.5%. Unless one is a brilliant intraday trader- and Macro Man is not- this sort of market naturally lends itself to trades that have a, ahem, "suboptimal P/L impact."

Elsewhere, Tuesday's post was a perfect example of the market Heisenberg Uncertainty Principle in action. In observing the strange lack of volatility in GBP/JPY, Macro Man evidently changed the dynamic, as the cross finally broke away from the 211 tractor beam to close New York at 210. At the time of writing, it's now in the mid 208's.

The ability of the yen crosses to withstand equity market volatility has certainly been puzzling, but it's not completely without precedent. After all, it was last June and July that the collapse of the Bear Stearns (BSC) (remember them?) hedge funds sent the initial shockwaves of the current crisis through financial markets. For most of those months, FX carry was unperturbed: NZD/JPY rallied 8.8% from the end of May to July 23!
After that, of course, the wheels came off rather badly, as the chart above demonstrates. Now, Macro Man would not suggest that we'll see a sell-off in yen crosses of a magnitude similar to last year, for the simple reason that aggregate positioning (at least among gai-jin) is much smaller. Curiously, next week's RBNZ announcement is slated for the 23rd/24th of next week (depending on your time zone)....what odds that history repeats, or at least rhymes?

Finally, Macro Man supposes that he should write a few words about the regulatory regime in the US, where the SEC has temporarily banned naked short selling in certain institutions. While there may be some merit in banning naked shorts, the move does smack of desperation - particularly when one considers that a number of firms on the protected list are probably themselves perpetrators of the strategy in one way or another. What's next? Banning puts? Banning sales altogether ("So sorry...this stock has a 100 year lock up period")?

It's enough to make one shake one's head in despair. Macro Man had to laugh at Tuesday's Bernanke testimony, where Sen. Jim Bunning delivered a philippic of such vitriol that you've gotta say that he's still got the fastball that propelled him to baseball's Hall of Fame! If you haven't seen it, click on the link for the video- it really is quite amusing.

Comments

[John Lounsbury:]

Macro Man, you really didn't address the title question. My answer is buy now and sell soon. I believe we have a bear market rally started which may have a 2-3% run or maybe 5-10%. Within three months or so I believe we will test or exceed the lows of earlier this week before the market will have worked out enough credit crisis indigestion to put in a final bottom. If the Fed is forced to fight inflation vigorously because of high energy and food prices spilling over into the rest of pricing we may not move far off this market bottom for quite a while (maybe a year?).

In short, the specifics of the answer to the question depend greatly on how actively you are willing to trade.

2008 Jul 17 08:50 AM

[youngolf:]

The Bunning video is more than extremely telling...He is simply 'truth-telling' while other senators, namely Shelby (seen smiling broadly like an idiot), and Dodd (stupid joke about Bunning should be more direct)...is very worrisome, and shows just how much they are 'out of it'. This country is in trouble.

2008 Jul 17 09:45 AM

[messy:]

Sell everything except those stock which you have to mine or drill for, otherwise forget it until after November. By then Wall St will probably be regulated by the federal reserve or JP MORGAN BANK.

2008 Jul 17 09:46 AM

[carey_jim:]

I like the title of your article but it isn't too original.

Sell after a big rally and buy after a large drop is the usual answer but few have the guts to do either one except with their play money and it usually isn't enough to make a difference.

Most of us are already rich "on paper" but hoarding our small pile of gold in practice and only alpha speculators with pennies.

Short selling complicates all of this, of course, but doesn't change the underlying problem.

If you want to get rich quick you have to face the possibility of getting poor fast too.

Live and invest dangerously but don't yell too loudly when you fall on your face and above all don't blame other people.

And if you finally get rich, run for political office and change the rules so you will never lose any money again.

You will be too big by then to fail.

2008 Jul 17 10:56 AM

[buyforeclos...:]

Uptick rule needs to be reinstated period... help end the shorts market and that is all it has been for 6 weeks.

2008 Jul 17 11:14 AM

[John Lounsbury:]

I would just point out that we have had bear markets with the uptick rule in place as well.

2008 Jul 17 11:54 AM