Choose Your Allusion

(Today’s Theme Music: The Spiderman Cartoon Theme, with alternate version by The Ramones )

News flash: We will not be interrupting our programming to bring you the September employment report this morning.  Feel free to resume your regularly scheduled rally. 

That seems like a reasonable way to describe today’s activity in stocks.  In lieu of discussing the markets’ reaction to the monthly jobless numbers, I had plenty of opportunities to discuss other aspects of the ongoing rally in two pre-scheduled media appearances this morning.   I pulled out a bunch of analogies and allusions as a result.

Two of them came out in the first part of my first discussion.  Both should be somewhat familiar to long-time readers.  One of them referred to a discussion with Barron’s columnist Steve Sears during an IBKR Podcast that we taped on Wednesday.  He referred to the market climbing a wall of worry, and I responded:

… this is the Spider-Man market. Basically, this market just scampers up the wall of worry, and any little crags that are in its way — any little outcrops — are essentially ignored. 

The other term I used was “nihilism,” one I’ve used frequently.   Taken literally, nihilism is a philosophical term implying that life is meaningless and therefore values can be rejected and knowledge is impossible.  The term “values” in the term’s description refers to values in a religious and ethical context, but I think it’s fair to apply the mentality to “valuations” as well.  Momentum strategies, which are working wonderfully for many who employ them, are based upon trend following.  At their root, they assert that price action is what matters most.  At their extreme, they can completely ignore fundamentals and related valuation metrics.  This is the context in which I made the following comment today:

…there’s a certain amount of nihilism actually…  that just all news is good news and no news matters. And so… you can argue that by not getting this piece of news, that’s one less impediment… in the market’s relentless rise. 

In a second interview, I unveiled an analogy that came to me spontaneously.  While discussing whether certain investment themes had become overcrowded, I somehow thought of the Tokyo subway at rush hour.   The trains and trades might both be overcrowded, but somehow, they are able to push a few more willing participants into them. 

One other analogy that I didn’t use this morning, but applies nonetheless, is the “ratchet effect”.  In August, I described it thus:

I think what we saw Friday was more of what I’ve been calling the “ratchet effect” in markets. We go down slowly when we go down. When we do have down days—as rare as they seem—they tend not to be of a huge magnitude. But when we go up, we go up big. So, we have this big up move, then ratchet lower, then up again. It’s akin to turning a ratchet. 

Considering that today is Friday, we also noted why these have tended to react positively.  Remember, pre-market futures were trading only very slightly higher today.  The rally began only after the bell rang, and then it continued to ratchet higher throughout the morning.  Here’s why:

Fridays are the ultimate ratchet days because not only do you have the usual daily expirations in major indices and ETFs, you also have weekly options expiring for over 600 big companies and other decent-sized ETFs. So it’s much easier to get these things running on a Friday. I don’t think it was a coincidence. 

So, take your pick.  “Spiderman market”, “Nihilist market”, “Tokyo Subway market”, or “Ratchet Market”?  I think any of them work.  Feel free to vote in the comments below.