Ominous Background Music

The market is really starting to feel very heavy. Yet again yesterday we failed to move up on a stronger piece of macro data. The old adage that “bull markets don’t end with bad news, they end with good news” springs to mind as the marginal buyer seems to have packed his bags and headed off on holiday, just as other participants begin to make their way back. In a piece of Shakespearean symbolism, it is a cloudy day outside with rain showers breaking through (cue ominous background music). Of course the market isn’t quite as scripted as Shakespeare (despite best governmental efforts) so we don’t know for sure that bad things lie ahead but it kinda looks like that way.

It’s the low quality stuff which is really got smoked yesterday in the US and that looks set to continue today. The ADP numbers were worse and have taken the sheen off a better productivity figure, not that the latter would necessarily have had any impact given the markets disregard for all things positive of late. We’ve got the defensive names again outperforming in Europe as risk is sold, even NZD is seeing some follow through from yesterday’s move. Asia was far more mixed as China ended up on Jiabao monetary policy comments. Tighter, looser, tighter, looser; the usual palaver. The Kospi, of course is still within spitting distance of its highs because it is immune to the rest of the world and Japan took a tumble on the stronger Yen.

It’s tough to find a reason to buy the market here, especially when you hear comments like this from Lou Jiwei, head of China’s $298bn sovereign fund…

“It will not be too bad this year. Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose,"

And I would think fingers are on the trigger ready to put the shorts on should this downward momentum continue. Certainly some have already discharged some opening salvos as volumes were far better yesterday. Given one of the arguments against the bull market thesis has been the lack of volume, it is perhaps instructive to see Eminis print 3.2m yesterday vs an average of c1.75. And looking at where the volume went through, it was heaviest at the lows…(cue more ominous background music).