Eish! This has been one tough market this week. Anglo, Billiton and SAB Miller have each risen enough to add more than R10bn to their market cap. At the other end of the league table Kumba shed just R350m so it was a no-contest game for the bull. The Top 40 Index looks as if it will be up around more than 5% on the week. That hides the fact that on Tuesday we saw a low which was 8% below today’s high. Absolute roller coaster stuff and very very difficult for investors. It also didn’t help that Thursday’s main financial newspaper fussed over the story of worthless MBAs (is this news?) and relegated to page 18 the information that the previous day’s 3.5% up tick in the all share index was the biggest in several years!
Even for traders, who sit glued to the screens all day (except for restoring trips to the gym or the pub), it was not an easy market. Using the INet charting system I have devised what I call the pain index (well, I am a bear!) that calculates the losses involved if one were to do absolutely the wrong trades day after day. That is to sell at today’s low what you bought at yesterday’s high and then also to cover yesterday’s sale at to today’s high. This is not a recommended trading strategy but seems often to be pretty much the outcome for the trader who is both stupid AND unlucky. The current picture is that the pain index is well over double its long term average. Call the stretcher bearers! Naturally the joy index for the clever and lucky trader is identical but positive. The index is really just a crude form of measuring market moves.
There have been all kinds of stories doing the rounds about why this volatility has happened. The most popular one (probably because it involves someone else in trouble) has to do with those big players who have large derivative books. Now you and I think a derivative book is one where the author is guilty of plagiarism but apparently in this context it is a portfolio of options and futures. These babies are very sensitive to market movements and can burst into tears if mom is just the slightest bit inattentive to their nappy or feeding time. It is being gleefully rumoured that severe neglect has allowed both starvation and rash to occur in some nurseries. And major tears are happening.
Whether or not this week really was a case of a bull trap followed by a bear squeeze we will not learn for several weeks until the bandages come off the burned fingers and the stories get leaked over a calming brew. It does not alter my view that the bear will run out as the king this year. Just watch that US 10 year bond yield!
This seems to be a good point to share with you a bumper sticker plastered on a bakkie in the garage here: “Beer is not just a Breakfast Drink”.
James Greener
Watermark Securities
21 May 2004
