When will this rally end?

What everyone always forgets is that information does nothing to the market, orders do.  Information can and does cause action but information is about the story.  What does the market believe or what can you get the market to believe.  Show a little bit in “your” direction and viola bias can be confirmed.

Early experience.

Two experiences I had earlier in my career shaped my view on information.  The first was seeing the market rally on a weak oil numbers.  The next Wednesday the market rallied on strong oil numbers. Then it did nothing the next time on a huge miss in expectations.  I became really skeptical early.  Note this was a time of high participation so the numbers “should” have matter. The second was walking into a brokers office.  I heard his pitch.  “It is going to be  a cold winter buy nat gas or gas is always up in the Summer” (I can’t remember which at this point but it was around the same time Amaranth blew up).  I was new so I was like wow, he is right.  I did not make either of those trades but when I came back in 6 months that broker was gone.  I do not know what happened to him but he had a corner office.

The take away. 

News is often important but it does not mean it is always most important to the market.  I am biased to technical and relationship analysis and that is why we look to identify markets in critical areas. Be careful of seeing news as more than an indicator.  Meaning, what “good” or “bad” news does to the market.  Is the market rallying because of good news or despite it?  Secondly, what is the easiest story to tell. What can the most people believe in.  How can the story get so big it becomes a self-fulfilling prophecy. (See gold and the same can be argued for equities) This is not much different than the way I view technical analysis.  The more people who see or believe the more likely they are to act in a predictable way.

When will this rally end?

The simple answer is when it stops paying people after a certain overlap or is stop being paid for by shorts. The people that have been wrong have to run out of money or their thesis changed.  From there we have a chance to either continue higher or longs capitulate.

The money question.

Talking about when the rally will end will not make you any money.  If you are already short you should be past the thinking stage and already have a plan. If you do not have a current position you should look toward risk first and then formulating a plan.   The market has had times when it has begun to crack but those cracks have been repaired.  Whether they have been repaired by a bandaid or mortar remains to be seen.  You can’t ignore cracks forever or create them for yourself if you want to profit from the change or lack of.

Speaking in generalities; in a bull market they first buy it cheaply, then they buy any price and breaks, then they buy breaks then they cause the breaks then the we have two way market again in which anything can happen.  Never underestimate the power of continuing to do things that make money and holding way past when they do not.

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