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Markets seem overbought. What am I missing?
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Cold Warrior
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Feb 4, 2011, 12:41 PM
 
Anyone else feel like the markets are overbought? I was trolling through the indexes and the run-ups seem disjointed from the fundamentals. Am I missing something that is driving true gains or is this another bubble?

Move this to PWL if necessary.

Dow Jones


Nasdaq


S&P 500
( Last edited by Cold Warrior; Feb 6, 2011 at 12:14 PM. Reason: added graph titles)
     
Dork.
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Feb 4, 2011, 02:07 PM
 
Are the algorithms who are doing most of the trading these days looking at the fundamentals?
     
turtle777
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Feb 4, 2011, 02:15 PM
 
Originally Posted by Dork. View Post
Are the algorithms who are doing most of the trading these days looking at the fundamentals?
No, they just look at Ben's printing presses, and the national debt clock.

As long as those are not slowing down, (hard) assets will continue to appreciate.
We see all the signs of big inflation.

Of course, much of what's happening in the markets is contradictory to the lies of the government, and its fudged statistics, but what else is new.

-t
     
Thorzdad
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Feb 4, 2011, 02:30 PM
 
CW...You aren't expecting markets to act rationally, are you?
Profits are up, worker efficiency is up and hiring is still largely theoretical. Of course the markets are going to love it!
     
Dork.
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Feb 4, 2011, 02:42 PM
 
Since at least 2/3 of the trades in the financial markets are done algorithmically by high-frequency trading outlets (I've seen the figure quoted as high as 75%), if you want to understand why the market behaves the way it does, you need to understand the algorithms, and I doubt they're taking fundamentals into account. (I would be happy to be corrected by someone more knowledgeable!)

(I think what we are all saying, in different ways, is that it's another bubble, silly!)
     
Uncle Skeleton
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Feb 4, 2011, 04:03 PM
 
Are the 1st and 3rd graphs redundant?
     
olePigeon
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Feb 4, 2011, 04:10 PM
 
Originally Posted by Cold Warrior
Markets seem overbought. What am I missing?
About $200 million and a datacenter located on Wall Street.
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Dork.
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Feb 4, 2011, 04:18 PM
 
Originally Posted by olePigeon View Post
About $200 million and a datacenter located on Wall Street.
I thought all the datacenters were in New Jersey.
     
Cold Warrior  (op)
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Feb 4, 2011, 05:38 PM
 
Originally Posted by Uncle Skeleton View Post
Are the 1st and 3rd graphs redundant?
I don't think so. In order they are Dow, Nasdaq, S&P 500.
     
olePigeon
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Feb 4, 2011, 05:51 PM
 
Originally Posted by Dork. View Post
I thought all the datacenters were in New Jersey.
The most effective trade centers are actually on Wall Street. They pay millions of dollars for office space physically closer to the stock market. When you're making that many trades, fractions of a millisecond make a difference, especially with analytical engines that can trade stocks after the price is reported, but before change takes place.
"…I contend that we are both atheists. I just believe in one fewer god than
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Cold Warrior  (op)
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Feb 4, 2011, 05:54 PM
 
Originally Posted by Thorzdad View Post
CW...You aren't expecting markets to act rationally, are you?
Profits are up, worker efficiency is up and hiring is still largely theoretical. Of course the markets are going to love it!
I do think some run-up was warranted, because profits and efficiencies are actually doing ok-to-good despite high unemployment and underemployment. But these levels give me pause -- the dow approaching peak levels and people throwing crazy money at dubious tech startups.
     
Dork.
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Feb 4, 2011, 05:58 PM
 
Originally Posted by olePigeon View Post
The most effective trade centers are actually on Wall Street. They pay millions of dollars for office space physically closer to the stock market. When you're making that many trades, fractions of a millisecond make a difference, especially with analytical engines that can trade stocks after the price is reported, but before change takes place.
True, but I thought all the major exchange's data centers (i.e. "where the market is located" for high-frequency traders) were in New Jersey.
     
olePigeon
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Feb 4, 2011, 06:07 PM
 
Originally Posted by Dork. View Post
True, but I thought all the major exchange's data centers were in New Jersey.
Oh, right. I'm certain there're two parts to it, one data center near the exchange, and one near Wall Street. They'll trade when the exchange reports the price, but before Wall Street does.

Or something to that effect. Either way, wish I was in on it. It's literally free money. It'll probably be illegal pretty soon, or they'll put the market on a heartbeat trade.
"…I contend that we are both atheists. I just believe in one fewer god than
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Big Mac
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Feb 4, 2011, 06:47 PM
 
Many have commented that the markets have been climbing a "wall of worry" recently, continuing to go up in spite of many negative factors. I would say some retracement (repeating of a previous downtrend) is quite probable at this point, especially if there is a big macroeconomic factor that causes a change in sentiment (such as oil breaking out above $100/barrel again because of the erupting Middle East). I think I'd recommend to a person with a stock portfolio that it may be time to start taking some profits and scaling back positions. I don't know how much upside this current uptrend has going forward because I do agree it looks overbought, but on the other hand it is hard to call market tops - especially when we're still far off previous highs.

I think that part of what's boosting market sentiment is that at least some in the country are taking the deficit spending disease seriously. They were just discussing this dynamic on Kudlow (CNBC) - that gold has at least temporarily slowed its momentum, and oil has so far remained in check below $100/barrel - because there's widespread consensus about getting the deficit in line (except, perhaps at the White House where the president pays lip service to deficit reduction while touting continued government spending as the path to prosperity). Deficit reduction reduces commodity prices and consequently keeps a lid on inflation. Low inflation fuels stock market gains. But if the deficit spending continues unabated, then look to commodities to soar again, the market to tank and probably plunge us back into recession. (Sorry to get into PWL territory.)
( Last edited by Big Mac; Feb 4, 2011 at 08:31 PM. )

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Cold Warrior  (op)
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Feb 6, 2011, 12:13 PM
 
Heartbeat seems like it would help with the algorithmic trading, if the beats are far enough apart to allow regular humans without multi-million dollar computers to make decisions.

But maybe it doesn't matter? Humans still have opportunity to take advantage of wider trends and considered analysis. The machine trades seem to be a reincarnation of day traders but on a huge scale.

edit: just added graph titles
     
Eug
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Feb 6, 2011, 12:53 PM
 
I was tempted to sell some of my stuff when the Dow hit 10000, then again at 11000.

Now that we're at 12000 for the Dow (and nearing 14000 for the TSX), my trigger finger is getting very itchy, but I haven't caved yet...
     
turtle777
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Feb 6, 2011, 01:21 PM
 
As long as Chairsatan Bernanke keeps easing, you don't have much to worry about.

Seriously though, what's to watch IMO is oil prices and Treasury yields. High oil and Treasuries could cause the economy to roll over. It's just a matter of time.

-t
     
Cold Warrior  (op)
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Feb 6, 2011, 02:02 PM
 
My IRAs have certainly benefited from the rise, and I'm considering transferring some or a lot of profits into conservative funds.
     
olePigeon
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Feb 7, 2011, 12:01 PM
 
Originally Posted by Cold Warrior View Post
Heartbeat seems like it would help with the algorithmic trading, if the beats are far enough apart to allow regular humans without multi-million dollar computers to make decisions.
It's not to make it so people can compete with computers, it's to stop the computers from exploiting the laws of physics and essentially cheating.

Funny side note, hackers are exploiting the same principles as the computers by forcing artificial lag between trades.
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you do. When you understand why you dismiss all the other possible gods,
you will understand why I dismiss yours." - Stephen F. Roberts
     
   
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