The early 2011 numbers are out for consumer spending and they are flat out ugly:
The market will likely rally 500 points on the news the way it's been trading lately. Folks, I was shocked that the market didn't sell off hard after the inflation and jobs data today.
As you know, I am very skeptical about what is going on right now when it comes to stocks. Everyone keeps saying that the market can only go higher thanks to the money printing Fed via QE. I must say I agree but I think there is more to it.
I can't help but believe the HFT trading algos are also involved in helping create a floor for this market. They are creating massive amounts of liquidity as they move in and out of stocks in a matter of seconds. They now represent about 73% of the trading on Wall St.
This is very scary to me. Last year's flash crash showed us what can happen when they all decide to stop buying.
I wanted to throw up a chart of the DOW and point something out:
I thought it was interesting to look at the daily market moves since early last year. As you can see, we haven't had a 200 point sell off since August 2010. On the flipside, we haven't had many 200 point moves to the upside either. I can count them on one hand.
Does anyone else find this bizarre? Here we are working our way through the most dramatic financial disaster in history and the stock market acts like it barely notices on a daily basis. Think about the stories the market has ignored over the past few months:
- The greek riots
- Ireland collapse
- European debt crisis
- Horrific housing numbers(beginning in the fall)
- Bad unemployment
- Rising interest rates
- Munincipal bond/state solvency issues
I would have expected at least a couple of large sell offs as a result of these events.
On the flip side, we never got a huge move higher as the Fed started printing money and companies started blowing out earnings. The trend is definately higher as a result of these two things but it's been a very slow methodical climb higher. It doesn't look normal too me when you compare it to the fierce rallies we saw in 2009.
The markets movement is even more strange when you compare it to the the bond and currency markets. Both have reacted violently as we work our way through our worst financial crisis since The Great Depression:
We saw the largest bond rally in history last year which was followed by a violent sell off after the Fed announced QE.
As for currencies, they were just as volatile. Take a look at the dollar over the past 12 months:
These moves in the dollar are huge versus normal times.
The Bottom Line
I think the stock market has developed into nothing more than a casino parlor that's dominated by trading robots that scalp each other all day long. Any large move up or down seem to get sold into.
I guess we should expect the market to move like this when the average trade is 11 seconds. When you think about it: How in the heck can any daily rally be sustained when the quants are programmed to sell once they scalp a few points?
IMO, the market no longer represents what's going on with the economy. It now represents whatever the trading robots want to do on any particular day.
I will be keeping an eye on consumer spending moving forward. The chart above tells me that the inflationary pressures from higher oil and food are starting to have an effect on discretionary spending. If this trend continues things are going to get ugly in a hurry.