Sunday 3 July 2011

So, What Changed?

Last week the Us Stock Markets were on a tear, gaining almost 5% for the week. All the bears were wiped out and there is now talk of a new bull run.

But I am scratching my head to figure out the reason for such exuberance.

OK, Greece is fixed for a while, but we shall visit there again, I promise.  The European Banks have just purchased little bit of time. By itself, Europe is not worried that Greece will go bankrupt; because they know that it will happen soon. They are worried of the contagion effect with Portugal, Ireland and Spain.  And Italy is not looking too good either.

Has the  US Economy become strong over one week? Is the better than expected PMI caused the stock markets to get up and run? Unlikely, because most of the gain in the PMI was from inventory restocking which is bad for the future. The US Economy is going along at a stall speed of 2% growth in GDP and with the biggest debtor nation on earth not showing much life, how long before a QE3 will be needed is anyone’s question.

So what gives? Apart from end of the month and end of the quarter manipulations, I have no answer.
Have we reached the bottom of the correction that started in June? I doubt it. May be it is a good shorting opportunity, because going long based on hope and manipulation is not a good idea. We shall know very soon.

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