Monday 1 August 2011

End of Debt Drama.

So we are coming to the end of the drama. The House passed the bill and Senate will do likewise tomorrow. It was a grand exercise aimed at fooling the American people and world at large about the seriousness of the un-sustainable debt & deficit reduction. There are no cuts, not at least till 2013. All the cuts are coming from expenditures not yet incurred and savings from winding up of wars in Iraq and Afghanistan.  So Obama get to spend what he wants till election. There is no revenue increase plans, not even plugging the tax loopholes. So the Republicans are happy as well.

It seems both the right wing nuts and left wing freeloaders got what they wanted, after keeping the country hostage for days and months and destroying the good image of USA. Only group who have been fooled again are the middle class hard working independents.  So much so, dictator of Russia, Putin is now emboldened to call the USA as a parasite. Sad day indeed!

Nothing has been achieved, nothing has been saved. We are moving closer to the cliff.

We all have different time perspective of investment and trading. Looking at the macro economic situation of the world, considering that we are at the end of the debt super-cycle and desperate effort by the different global economies like the USA, Europe, China and Japan, to keep the Ponzi going, I am now looking at a correction of 300 points in SPX, not just 50. For that to happen, the market has to go up first and create the feel good factor.

Once again, we are at the lower end of the channel.

SPX gaped up, came down hard on ISM and uncertainty about the passage of the bill in congress and then pared the loss substantially.

Surprisingly, VXO (old VIX) did not go up. It closed down in red inside BB. That itself is a buy signal.

DOW also came down and touched the 200 DMA and created a reversal pattern.

So far it has created higher lows. 10000, 11000, 11600, 11900, 12130. So it would not be unreasonable to expect for it to make a higher high before the crash.

COT data still giving bullish signal by the smart money commercial traders.

One of the reasons for the failed relief rally can be explained by the theory of inertia or law of motion. Cobra, who does great job of TA, very often says that when a car is moving fast, it cannot reverse immediately. It has to slow down and then reverse. So yes, the reversals would come, possibly as soon as tomorrow or latest by 3rd of August. I would expect a major top to be formed around August 9-16.

I would also draw your attention to silver.

It has so far failed to break the $ 40 price level to the upside. When in the coming days, it closed below $ 37.50 level; it will be a good short candidate.

Looking forward to tomorrow’s market action, I expect the market to be uncertain in the morning, small gap up which will be filled. It is possible that the indexes will revisit the lows of today but by the afternoon, it should inch higher and most likely start a rebound tomorrow. I might add to my longs tomorrow as a very short term trade.


  1. you mean to say august 3rd and the week of august 9-16 right?

  2. ..."short term trade" as in several days? Or, until the close? Or, until the projected mid-August major top, to be sold with the rest of the position then?

    Note that it was pretty clear, from your context, you meant August and not July; but if you can edit or change it there would be no chance of confusion.

  3. So yes, the reversals would come, possibly as soon as tomorrow or latest by 3rd of July. I would expect a major top to be formed around July 9-16.

    3rd of august?
    January 9-16?

  4. Another great post...Just want to mention you probably wanted to say August not "July" in your post.
    I really like reading your material and couldn't agree with you more.

  5. Correction made. Thanks for pointing it out.