28/08/2003
Next year will someone please remind me to take August off. It is not often I agree with the French but I have to say this month has gone down about as well as a french kiss at a family reunion. A torturous range bound equity market has been compounded by a lack of material to stimulate my satirical juices. With many US traders still posing it up in the Hamptons until tuesday volume is low making a proper breakout difficult. What traders are around are confused about conflicting data and indicators.
Earlier this week one investment bank put out some research showing that last week saw a high equity outflow and they commented that this conflicted with the strength of the dollar, as it is expected that a fair degree of these dollar purchases would find their way into the equity market. Though in a broad sense this is correct the research is flawed in terms of timing. There is often a delay of between 3 days and 2 weeks between FX trades and then corresponding investment in equities especially for what we call "hot money" or speculative capital. It would not only be understandable but sensible for this money to wait for volume to pick up prior to entering the market and from tuesday liquidity will be better. Also it is quite possible that the hot money will wait for a breakout of the range in the S&P so be ready for this as a breakout of the top of the range could be explosive.
On the bear side it should be noted that director share selling has been high and that volatility, the VIX, is very low which, according to many commentators means the markets are about to tank. I know I'm not very bright but couldn't this low volatility actually be because EVERYONE IS ON HOLIDAY! My god some of these analysts and commentators are clueless.In short we still favour a breakout of the top of the range and though I feel we are entering bubble territory we will ride the horse until we get thrown off.
Harry