Now that we have made it through the Christmas season, it's on to the New Year and talk of what lays ahead for 2015.So with the stock market back at all-time champagne popping, bubble flowing highs, where are we headed?
I wish I could tell you. Heck, I wish I could tell me. I like the perspective of Justin Wolfers in Sunday's New York Times. In spite of or refreshingly because he's an economist, he lays a roadmap of the issues facing the US in 2015. http://www.nytimes.com/2014/12/28/upshot/the-big-economic-unknowns-of-2015-from-unemployment-to-oil.html?ref=todayspaper&abt=0002&abg=0
In summary, Wolfers says, "I wish I could offer clearer guidance about next year, but an honest account focuses on the limits of our knowledge. We're not sure how much further the economy can improve next year, or even if it will actually do so, and we don't know what might drive it off course.So instead of a forecast, I'll offer advice: Prepare for the worst, hope for the best and count on being surprised."
It is the unknowns that we can't predict. Ebola, oil at $55 a barrel…who saw those things as main drivers of the market in 2014? Nobody!
What about Greece's fiscal situation disrupting the global economy a few years back. In 2011, the tsunami that brought huge damage to Japan also caused global economic tremors. Wolters adds that, "And while we have often seen political gridlock in Congress, the extreme brinkmanship over financing the federal debt in recent years has been a form of economic self-sabotage that was once unimaginable."
While we do know that the Federal Reserve and the other central bankers will remain a constant presence with their never ending ability to print money to keep things temporarily afloat, we can't be sure of the global or domestic events that will cause them to turn on the spigots.
Another low volume choppy session was in the books on Friday. With the holiday hangover in play, stocks were "range bound" for the most part. The major averages did push out gains again, continuing this late Santa Claus rally. We should see further extension this week, but don't be surprised if we have some pullbacks. We could see some very late profit taking in play. I do think we should also see a rush of buying here and there. I don't suspect we will get crazy action this week, but you never know with these markets.
The market has taken a pause and what does that mean? Drill the VIX! That is the default setting when people stop losing their minds. Americans are no longer all going to die from Ebola (we cured it!), Russia is finally come to reason and sees the global socio-economic situation as the rest of the world does, ISIS no longer poses a threat, and everyone in Europe is gainfully employed and productive. All is good! Maybe this is true and as human beings we hope it is, but as traders we look through things through a less-rosy lens. Things can change quickly and when it does we want to be positioned properly. So, we just buy some at the money calls or some vertical and sit on it right? No. Why would you rush to buy something that is coming down? If it continues to fall, we will get filled. If it takes off, we will have loads of other opportunities with markets flying all over the place.
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Keep a civil tongue.