Conditioned To Catch The Falling Knife

Tyler Durden's picture

The numbers out last night were once again largely on the weak side of disappointing, with very little reaction and even less of an intuitive reaction. As Bloomberg’s Richard Breslow writes, this is the downside of everyone having the same positions. Simply put, we've been trained to catch the falling knife by the CBs, one of those trading strategies that will work until it doesn’t and when the knife slips you will really have a taper tantrum.

Via Bloomberg's Trader's Notes...

Some strategists are even finding good news in the euro area growth data, noting that it is impressive there is any growth at all when none was expected, unlike U.S. where 1H numbers disappointed -- some people just don’t like black and white analysis.

 

As we have mentioned before, it seems there is this enormous consensus in all ideas and positions, everyone knows that central banks are there and driving everyone’s positioning, my friend Bob Savage said yesterday:

 

"we’ve been trained to catch the falling knife by the CBs, one of those trading strategies that will work until it doesn’t and when the knife slips you will really have a taper tantrum."

 

It’s becoming harder and harder to look at the news and then guess what market did in response - although it’s a fun game to play at 3am in the morning when you can’t sleep.

 

May perhaps be better to consider not so much trading the reaction to events, instead trade movements in anticipation thereof, trade the expectation, then go into the number flat, the expectation tends to be much more logical than the reaction.

 

If you look at how markets are trading, they move ahead of a central bank meeting, or a strong or weak number, then everyone is caught with same position and you end up being right but proven wrong.

  *  *

Welcome to the new normal.