Through the entire 1990’s, I was an Institutional Government Bond Trader at Merrill Lynch Canada where I traded billions of dollars in bond risk per day. I was one of those people you saw on the 6 o’clock news when they brought a camera and a reporter onto the trading floor to talk about interest rates, or something like that. The job was a young person’s game as it was filled with constant stress 24/5, being it was a 24 hour job 5 days a week with overseas phone calls multiple times per night. There seemed to be a household budget for Pepto Bismol, Rolaids and Zantec.
It was also a phenomenal training ground to learn how to “trade”. I learned the most from one man (who shall remain nameless – because he is also a High Rock client) who, still to this day, is the best raw trader I have ever seen. He taught us slightly younger folks some basic principles of surviving and thriving. Things like following the Technicals (charts), the Fundamentals and the Flow in trading, you only have to be right 60% of the time and never trade from cost. The list goes on and those rules follow me today.
Another one he taught us was, when positive news hits a stock, bond, commodity, market, etc. and that security doesn’t respond positively, the opposite (a decline in the price of that security) is likely to happen in short order. And the opposite is obviously true when bad news doesn’t hit a security.
To that end, I cut and paste a note on some market statistics from another Merrill Lynch Canada colleague and friend, David (Rosie) Rosenberg. In his daily morning note this morning, he writes:
It is actually interesting to see how the mantra is that a record 85% of S&P 500 companies so far are beating their EPS estimates, and yet the stock prices of these companies have only edged up 0.2% in the session following their release. A sign of a fatigued and fully-priced stock market (94% of the tech sector has “beat” and their shares dropped an average 0.6% the following day!)
Interesting. So, with US stock market Indices at, or darn near, all-time highs, and earnings beating analyst’s estimates (for the most part) and these Indices having a very hard time advancing, the old trading rule of the Indices not responding positively to positive news, leaves me reminded of an old trading rule from a trading wizard.
Time to pay attention as 2Q21 earning’s season finishes up and see how markets perform, but so far, according to Rosie’s research, it ain’t looking all that positive for US Indices.