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Old 02-09-2018, 06:23 PM   #521
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I have been watching the market minute by minute for this whole move. My gut feeling is this is something major. I hope I am wrong. Waves of waterfall drops and climax selling pausing and then repeating. Very thin markets, any up moves are swatted down with unrelenting swipes. The up move on Friday afternoon was very vertical and unconvincing to me. I fear the worst may be ahead of us.
IMHO these wild swings up & down are program trading. Us retail investors are along for the ride. I don't think the swings are Mom & Pop unloading their nest egg to go to cash/bitcoin. I think the trading houses are exploiting very very small arbitrage points. And they may all be trying to leverage the same thing/fund/point. I think AI is running this thing

Sucks. But makes great headlines
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Old 02-09-2018, 06:24 PM   #522
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Hopefully I am a contrary indicator and we go back to the parabolic rise.
I don't need parabolas.

A nice 6% slope would be fine.

It really has been a while that we've had a patience testing correction.
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Old 02-09-2018, 06:34 PM   #523
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I must admit that I do not understand what is driving the violent swings in the market this past week. It seems that a derivative security designed to respond to changes in volatility is actually driving that volatility. And, in an even more bizarre set of circumstances, driving the trading value of actual equities whose changes are the measure of that volatility.

Yes, I know that P/Es have advanced sharply recently and that interest rates have recently spiked. Absent other things, that might drive a correction in the market until we get values more in line with underlying fundamentals. But that still doesn't explain the unprecedented volatility.

Given that I don''t know why things are happening, I do not feel I have adequate knowledge to formulate a response. So I am sitting tight. I am still as rich as I was at Thanksgiving, which was good enough then and still good enough now.
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Old 02-09-2018, 07:09 PM   #524
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I have been watching the market minute by minute for this whole move. My gut feeling is this is something major. I hope I am wrong. Waves of waterfall drops and climax selling pausing and then repeating. Very thin markets, any up moves are swatted down with unrelenting swipes. The up move on Friday afternoon was very vertical and unconvincing to me. I fear the worst may be ahead of us.
Those are all signs of derivative investments misbehaving and speculators having margin calls. It disrupts normal trading, but will probably work itself out in a few weeks or months.

Not that the market won’t still go down. Just the behavior you have seen is not in and of itself ominous.
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Old 02-09-2018, 07:23 PM   #525
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Something baffling I noticed is usually on a sell off "safe havens" like Treasuries, gold, and short term notes should rise. But this time none of these are going higher. The 10 year seems to be steady at 2.85%. Gold is down. Rates are down very slightly. I guess no one is in a panic yet.
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Old 02-09-2018, 07:36 PM   #526
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Something baffling I noticed is usually on a sell off "safe havens" like Treasuries, gold, and short term notes should rise. But this time none of these are going higher. The 10 year seems to be steady at 2.85%. Gold is down. Rates are down very slightly. I guess no one is in a panic yet.
Unless all of the asset classes are in bubble territory. Has the 38 year downtren d in 10-year rates been broken? 10 Year Treasury Rate - 54 Year Historical Chart | MacroTrends

Remember, the "turd in the punch bowl" of our equities up up up party was when wages increased more than expected, thus increasing inflation expectations and driving the 2 year note to 2.8+%.
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Old 02-09-2018, 07:48 PM   #527
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Something baffling I noticed is usually on a sell off "safe havens" like Treasuries, gold, and short term notes should rise. But this time none of these are going higher. The 10 year seems to be steady at 2.85%. Gold is down. Rates are down very slightly. I guess no one is in a panic yet.
It’s because rising rates are causing stocks to sell off. Of course bonds are down - rates are rising. Bonds rally a bit when stocks sell off strongly, but once stocks take a breath, the interest rates start moving up again, and the stocks start dropping again.

Until interest rates stop rising so fast, stocks aren’t going to be happy.

One month performance as of 2/8/18:

AGG intermediate bond index -1.72%

Vanguard Total Stock Market -5.94%

So over the past month VTSAX has dropped ~3.5X as much as AGG

Of course it depends on which day and which time frame, but short term moves in stocks can be much stronger.
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Old 02-09-2018, 07:54 PM   #528
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I think what started it was the unemployment and wage report that came out last Friday. The wage increase was 2.9% year-over-year. That drove the fear of inflation and higher interest rate. When some investors moved their money or started to hedge with options, that drove up the volatility index. That in turn caused the inverse index ETN to crash. There were stories of individual gamblers who loaded up on this inverse ETN and lost all of their stash.

That spook investors further, and the thing escalated. Joe and Jane Blow logged in to their 401k Web sites to sell. When in doubt, just sell and figure things out later. When they could not log in, that scared them more. Panic ensued.

The market being at the top after a continual long rise is precarious, from a technical standpoint. People have gains they want to protect. On the fundamental view, the market is also at a high valuation (P/E ratio). Investors are edgy, and when someone says "BOO", they jump. Pandemonium results.

The above is my interpretation from reading stories on the Web. I have no access to on-the-air or cable TV in this home to hear the explanation from pundits.
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Old 02-09-2018, 08:22 PM   #529
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I think what started it was the unemployment and wage report that came out last Friday. The wage increase was 2.9% year-over-year. That drove the fear of inflation and higher interest rate. When some investors moved their money or started to hedge with options, that drove up the volatility index. That in turn caused the inverse index ETN to crash. There were stories of individual gamblers who loaded up on this inverse ETN and lost all of their stash.

That spook investors further, and the thing escalated. Joe and Jane Blow logged in to their 401k Web sites to sell. When in doubt, just sell and figure things out later. When they could not log in, that scared them more. Panic ensued.

The market being at the top after a continual long rise is precarious, from a technical standpoint. People have gains they want to protect. On the fundamental view, the market is also at a high valuation (P/E ratio). Investors are edgy, and when someone says "BOO", they jump. Pandemonium results.

The above is my interpretation from reading stories on the Web. I have no access to on-the-air or cable TV in this home to hear the explanation from pundits.
All of those people who sold, still have to figure out where to put their money. Sure, interest rates are "up", but is that still where folks are going to want to keep their money long-term?
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Old 02-09-2018, 08:30 PM   #530
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I must admit that I do not understand what is driving the violent swings in the market this past week.
I don't either.

Honestly, I don't think that anybody understands why markets move the way they do, although the income of many writers depends on coming up with causes for market movements that their readers will believe. There is a lot of "financial porn" being produced because it is a money-making business.

It's been said thousands of times, even on this board, but it seems unlikely that there is any individual who really knows why markets go up and down and behave the way they do. If someone did, probably they would be living the life of a billionaire rather than sharing these secrets with mere internet inhabitants like us.
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Old 02-09-2018, 08:39 PM   #531
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On the market swings. I realized a long time ago, can't predict psychological behavior. So I don't try. Whether human or automated programed by humans.
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Old 02-09-2018, 08:45 PM   #532
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There is a difference between predicting the great market movements, vs. finding the triggering cause afterwards. Of course I am not talking about the usual small market daily movement. That's just randomness.

Wasn't the Great Recession cause known? That it was caused by the housing bubble, subprime loans, and CDO? Now, people including the regulators did not foresee that it would be so bad, but afterwards they knew the cause, right?

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All of those people who sold, still have to figure out where to put their money. Sure, interest rates are "up", but is that still where folks are going to want to keep their money long-term?
To them, that comes after. When you think an earthquake is going to collapse your house, you run out to escape. You do not stop to think where you will be sleeping that night. My god, the market is collapsing! SELL!

If they think that the market is going down big, they try to front-run their cohort, then buy back when the market stabilizes at the new lower price. But when more and more people get scared like that, it builds up like an avalanche. The thing feeds on itself. Fear becomes reality.
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Old 02-09-2018, 08:54 PM   #533
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I must admit that I do not understand what is driving the violent swings in the market this past week. It seems that a derivative security designed to respond to changes in volatility is actually driving that volatility. And, in an even more bizarre set of circumstances, driving the trading value of actual equities whose changes are the measure of that volatility.
The violent swings are due to the derivatives. Derivatives have very unpredictable effects.

What set it off was a sudden change in outlook due to rising wages. Plus interest rates have moved up very fast over the past month and the stock market had kind of been ignoring it. Last Friday’s employment report may simply have been the straw that broke the camel’s back.

When things got unstable, some derivative investments crashed. Things like this can snowball, but it doesn’t necessarily mean there are underlying economic problems. But with an extremely overbought market, it was very vulnerable to such a selling event.
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Old 02-09-2018, 08:57 PM   #534
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All of those people who sold, still have to figure out where to put their money. Sure, interest rates are "up", but is that still where folks are going to want to keep their money long-term?
When folks panic they aren’t thinking long term.
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Old 02-09-2018, 09:02 PM   #535
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The violent swings are due to the derivatives. Derivatives have very unpredictable effects.

What set it off was a sudden change in outlook due to rising wages. Plus interest rates have moved up very fast over the past month and the stock market had kind of been ignoring it. Last Friday’s employment report may simply have been the straw that broke the camel’s back.

When things got unstable, some derivative investments crashed. Things like this can snowball, but it doesn’t necessarily mean there are underlying economic problems. But with an extremely overbought market, it was very vulnerable to such a selling event.
I think many investors think the market is "over-valued", after all, that's what we all hear, and when we look at historical PE ratios, we are in bubble territory. But most investors want to be "in", to some degree, because it may be even more over-valued tomorrow, but many have their fingers right on the sell button, just waiting to time that moment when the market realizes it's over-valued. Or they protect their run-up values with stop-losses which then get triggered.

I think we all knew this was coming, just not when. And we all know it probably isn't over.
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Old 02-09-2018, 09:15 PM   #536
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I think we all knew this was coming, just not when...
Yes. There you go.

Stand a bottle on its head. An unstable system. Start to shake the table. You cannot predict exactly when it's going to topple, but it's gonna happen.

Anyway, in the days ahead, the market will jump around a bit as people don't know if it's coming or going. I don't either. For fun, I will try to do short-term trading to see if I can pick up a few thousands. Not that much money, but I hate the mob, and will try to do the reverse of what they do. If I end up losing a few thousands, or find that it's not fun, I will stop.

The above is just trading on the side of my long-term core holding. If I fail, it's small change.
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Old 02-09-2018, 09:25 PM   #537
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I think many investors think the market is "over-valued", after all, that's what we all hear, and when we look at historical PE ratios, we are in bubble territory. But most investors want to be "in", to some degree, because it may be even more over-valued tomorrow, but many have their fingers right on the sell button, just waiting to time that moment when the market realizes it's over-valued. Or they protect their run-up values with stop-losses which then get triggered.

I think we all knew this was coming, just not when. And we all know it probably isn't over.
Hence the snowball. It’s like a game of musical chairs.

Personally I’m glad to see a big shake up and get some of that complacency removed, and get a little fear into those inexperienced investors.
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Old 02-09-2018, 09:28 PM   #538
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All of those people who sold, still have to figure out where to put their money. Sure, interest rates are "up", but is that still where folks are going to want to keep their money long-term?
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When folks panic they aren’t thinking long term.
of course! what I should have said was they will eventually have to figure it out, which is why I think that as long as interests rates are even close to what they are now, investors will feel compelled to re-enter.
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Old 02-09-2018, 09:36 PM   #539
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Stock valuation (P/E) usually goes down if and when interest rate rises. People who sell may be able to buy them back cheaper. If that happens, they get the last laugh. I won't.
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Old 02-09-2018, 09:58 PM   #540
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of course! what I should have said was they will eventually have to figure it out, which is why I think that as long as interests rates are even close to what they are now, investors will feel compelled to re-enter.
When interest rates get high enough, some folks decide to hang out in bonds instead.

I think there were folks piling in who hadn’t had experience with volatility. They got a little taste of why equities aren’t clear sailing.

Although memories sure are short! That Dec 2015 to Jan 2016 was pretty nasty and scary. Folks sure forgot about it quick though.
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