Friday 16 December 2011

On Course.

 Another weekend. Half of December is over and people have started to doubt about Santa. It seems people are worried about not having a white Christmas. For those in doubt let us look at the daily seasonality of SPX for the month of December again.

As you can see, we are on course. Monday, December 19, is the 13th trading day of the month. As per plan, we would see renewed weakness on Monday. On Wednesday, December 21, the Fed has a big T Bill sale scheduled. That might affect the liquidity flow on Monday and Tuesday of the next week.  And the OE week is just behind us. The boyz will now like to scare people a bit before loading on cheap and running in a thin market. I have written many times in the past that while the bottom is in, I am not going long yet as I expect choppiness in the market.  That is exactly what has happened. I love it when everything works out as per plan!

Zerohedge has an article based on COT report that the net EUR short position has reached a record high. Either EURO has to reach 1.20 or a short squeeze is coming.

Given that the volume in the next two weeks will be light, I would bet on the squeeze.

In terms of liquidity, ECB has given the European banks unlimited access to three year funds. And the Fed has granted ECB unlimited dollar funds. Theoretically, banks can borrow at 1% and lend to their insolvent governments at 7%. Only if MFG could get this deal! Corzine must be blaming his luck. Now who says that POMO is over? And why in the name of Ben, the stock market would tank? Just in case you missed the point;  ECB is making investing in peripheral sovereign debt a huge profit opportunity for banks."

Let us look at the hourly chart of SPX 500. The stochastic RSI is halfway down from overbought position and if we see some weakness on Monday morning, it would complete the journey. If I see weakness on Monday morning, I would start going long and position in slowly over two / three days. Most likely we will retest the lows of December 14, before the start of rally.

As I keep saying, it is all a question of risk and reward. I think the risk of major downside is far less than the reward of going up. And the sentiments are so downright negative. See the   CPC and CPCE at the end of the day today. CPC stands at 1.20. More people are convinced of a market crush.  . And guess who are writing all those puts and collecting all the premiums.

Have a great weekend folks. Thank you for following me on Twitter (@BBFinanceblog). Please retweet to your friends who may be interested and who might benefit. Visit regularly to profit from the world of finance.

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