Sometimes

Sometimes life gives you something so great that you sit wondering how on earth you could have deserved it. Sometimes it takes from you something that has become the cornerstone of your purpose in an instant. Sometimes you can slowly see that coming. Sometimes you can do nothing about it and choose to bury your head in the sand in an attempt to avoid the inevitable. Sometimes the inevitable is not inevitable. Sometimes things work out better than you expected. Sometimes things work out differently to what you wanted and that turns out to be better than what you were hoping for. Sometimes you have to choose to do what is difficult and uncomfortable in order to get a shot at something that may or may not work. Sometimes it's worth it. Sometimes you need to walk through hell with a brave smile on your face. Sometimes you must choose uncertainty over absolutes. Sometimes it's easy to do that. Sometimes it's not. Sometimes doing things that are out of your character and against your nature is the only way in which you can grow. Sometimes you have to force yourself to grow. Sometimes you have to make incredible sacrifices without knowing if they will ever be made for you in return. Sometimes you just have to take that chance. Sometimes things are worth risking everything for. Sometimes you have to accept that you are not in control. Sometimes you have to give life the space it needs to unfold at its own pace.

So what about U.S. interest rates?

There is no shortage of people speculating about what is going to happen with regard to the U.S. interest rate hike situation so I figure I may as well through my 2c into the pond as well.

The way I see it is that the Fed had said that they are looking at two major factors before they can increase interest rates. These are (paraphrased of course);

1. a reasonable expectation that inflation will reach 2% within 12 months

2. full employment in the economy

So addressing these:

1. Now ok, we know that inflation in the U.S is rather stubbornly low, although we have been seeing it creep up the page a little. Lot's of mixed data coming out in terms of PPI and CPI and so on, although it does seem that the current near zero interest rates is and has been allowing consumers to spend like there is no tomorrow. I am no expert on this but I think that if nothing changes, within 12 months we could see 2% inflation in the U.S.

2. We've seen that Non-Farm Payrolls came out much lower than what was expected for the month of August. We also saw that Unemployment Claims came in lower than expected for the month of August. So what this is telling me is that fewer jobs are being created, but at the same time less people are unemployed. Sure you will never be able to get completely 100% rid of unemployment, but what it looks like is that the U.S. economy is approaching full employment.

So taking these two factors into account, I would say that we are likely to see a 0.25% increase in interest rates when the Fed makes their announcement later this month.

That's my 2c.

@TraderPetri 

Dow Theory says nothing to worry about ... yet

I've been very worried about the market at large and that what we are seeing is perhaps the beginning of another 2008 type scenario. I wasn't around when the last crash happened, well I was around, I just wasn't involved in the markets (I bought my first share in 2009 - if only I never sold it...). Anyway, I've been looking at the charts and freaking out about the news like most people I suppose and started to really get worried about the world markets at large, thinking that they are about to come crashing down at any second.

This may still be lingering in the back of my mind, although I have found some comfort that we do not yet have confirmation of the end - according to Dow Theory - yet.

One of the rules of Dow Theory is that there needs to be confirmation of new highs or lows on two various indices before one can comfortable say that a new trend is forming. These two indices were once the Dow Industrial Average and the Dow Railroads Average. Times change though and in modern times a more accurate measure of the U.S. markets would be to use the S&P500 and the Russell 2000. Now the basic idea here is for both of these indices to break to new lows roughly at the same time before we can confirm that the overall market trend (primary trend) is changing.

Looking at the S&P500, we can see that the last major low has not been taken out yet.

The most recent major low is indicated by the red line and until that line is broken by price, we cannot say that a major new low has been formed.

When looking at the Russell 2000, we can also see that no major new low has been formed yet.

The most recent major low is indicated by the red line and until that line is broken by price, we cannot say that a major new low has been formed.

So based on the concept of confirmation as stated in Dow Theory and adapted to our more modern market, we cannot say that the Primary Trend has changed yet.

This does little to soothe the nerves, although it does add some perspective. Only one those lows are taken out on both indices at roughly the same time can we confirm that the general market is moving from Bull to Bear mode.

*Note the the red lines (for confirmation) are based on daily closing prices and not on intraday spikes.