Ignore the minutia and keep your eye on the big picture

According to the financial media today's sell-off was apparently due to Obama's plans to regulate banks so they can't do prop trading. This is weak excuse. The other explanations are the news about how China is planning to curb bank lending and the surprise election of Republican Scott Brown. Weak and weak. All this minutia is good for is an excuse to cause a correction. The market has rallied 70% in 10 months while traders were getting complacent given the low VIX and put/call ratios. This makes the market susceptible to selling off on any sort of excuse. These sorts of excuses do very little to derail the major trend in place.

I remember back at the November 2008 bottom the market rallied massively from the low point when it was announced that Geitner was elected as the new Treasury secratary which was not even a surprise given that he was favored to be the selected. But the market was so oversold and traders were leaning to the short side so heavily that this flimsily excuse was all it took to spark massive short covering. Eventually that rally, although impressive and multi-week, failed and a new (and final) low was reached in March 2009.

When it comes to the major trend it's all about earnings folks nothing more which means it's all about the health of the economy which drive earnings. Are earnings growing or poised to grow at a healthy clip? That's what you need to know. Are the above news items going to put a serious dent in earnings growth? Highly doubtful. The only type of news you should pay attention to is economic news directly related to earnings. Prop trading restrictions may affect firms like GS but what % of GDP is made up of prop trading by banks? Besides, firms like GS can simply de-bank to get around this or find some other way around it I'm sure. What effect will the election of Republican Scott Brown have on the $77 EPS estimated for the SPX this year or EPS in the future years? Close to Zilch. China curbing banking? Ok, that's probably the only news item that's worth paying attention to. Sure, this is counter cyclical to earnings growth in China but how much? Once an economy is gathering steam in either direction it takes a significant amount of counter cyclical policy and time before this trend is reversed. The China news seems like a baby step from what I can tell.

I can already see the bears getting euphoric yet again on just the smallest of dips and any trader complacency that’s out there is quickly getting extinguished with the VIX surging 19%. I've noticed the same stubborn top picking retail traders who have been getting their asses handed to them for months on end celebrating in victory today because they finally got one right. This is the worst thing that could happen to them because it keeps their hopes alive giving their crippled accounts another life line. I'm waiting for the day when all these jokers I'm tracking stop posting or openly admit they are quitting. One by one its happening and I've posted such confessions here.

So, have we in fact started the consolidation phase that I've been calling for? Perhaps but I still think there's going to be a least another stab at 1150 and possibly a bit higher. I really don't care as I've been focusing on my attention on individual microcap/small cap stocks that have minimal day to day correlation with the general markets. I will become interested in an index trade if there's a really good IT setup up and quite frankly there hasn't been one since November 2 and since I've vowed never to intraday trade again I haven't bothered playing the general markets for quite some time. Last year my attempts to trade intraday were a waste of time and effort. I basically broke even doing that which is probably better than what most people do.