We once read somewhere that there are 10 to the 180th power possible paths to checkmate in a game of chess. Similarly, the global markets are one large complex adaptive system and almost impossible to project their short-term macro path.
Nothing drives this home better than today’s market action. To the surprise of many, China’s Shanghai Composite reopened after a week of holiday celebrating the Year of the Dragon to close down 1.5 percent. S&P futures immediately drop 7 points on the China down opening. Many are caught leaning the wrong way, including yours truly.
The foul mood spills into Europe. The Portugal-Germany 10-year bond spread blows out over 200 bps; investors/traders use Sarkozy’s transaction tax announcement and Portugal to spank the French banks hard; the media noise kicks up several decibels as a Greek PSI deal has yet to be announced. All this with a backdrop of extreme overbought markets where some 14-day RSIs are north of 80!
Now’s it the U.S. markets’ move. Apple reverses a lower open and trades up over $7; the S&P500 holds 1300 and begins to climb back. How it closes will determine how the Asian markets react overnight.
Checkmate? Who said this business was easy.
(click here if charts are not observable)